Southern Motors vs.

Moscoso

Facts:

Southern Motors sold to Moscoso one Chevrolet truck on installment basis. Upon making a
downpayment, Moscoso executed a promissory note representing the unpaid balance of the purchase
price. To secure payment, a chattel mortgage was constituted on the truck in favor of Southern
Motors. Moscoso failed to pay 3 installments. Subsequently, Southern Motors filed a complaint
against him to recover the unpaid balance of the promissory note. A writ of attachment was issued.
The Chevrolet truck and a house and lot belonging to Moscoso were attached by the sheriff. After
attachment but before the trial of the case, the Prov Sheriff sold the truck at a public auction,
Southern Motors being the only bidder, purchased the same. Trial court then rendered a decision
against Moscoso.

Arguments:

S. Motors: claims that in filing the complaint, demanding payment of the unpaid balance of the
purchase price, it has availed of the first remedy provided in said article i.e. to exact fulfillment of the
obligation (specific performance)

Moscoso: contends that appellee had availed itself of the third remedy viz, the foreclosure of the
chattel mortgage on the truck. He submits that the matter should be looked at, not by the allegations
in the complaint, but by the very effect and result of the procedural steps taken and that appellee tried
to camouflage its acts by filing a complaint purportedly to exact the fulfillment of an obligation
petition, in an attempt to circumvent the provisions of Article 1484 of the new Civil Code. He
concludes that under his theory, a deficiency judgment would be without legal basis.

Issue:

What did S. Motors availed of under Art. 1484 of the Civil Code, the first remedy (Exact fulfillment
of the obligation) or the third (Foreclose the chattel mortgage on the thing sold, if one has been
constituted, should the vendee’s failure to pay cover two or more installments. In this case, he shall
have no further action against the purchaser to recover any unpaid balance of the price. Any
agreement to the contrary shall be void.)?

Held:

Manifestly, the appellee had chosen the first remedy. The complaint is an ordinary civil action for
recovery of the remaining unpaid balance due on the promissory note. The plaintiff had not adopted
the procedure or methods outlined by Sec. 14 of the Chattel Mortgage Law but those prescribed for
ordinary civil actions, under the Rules of Court. Had appellee elected the foreclosure, it would not
have instituted this case in court; it would not have caused the chattel to be attached under Rule 59,
and had it sold at public auction, in the manner prescribed by Rule 39. That the herein appellee did
not intend to foreclose the mortgage truck, is further evinced by the fact that it had also attached the
house and lot of the appellant at San Jose, Antique.

The court perceived nothing unlawful or irregular in appellee’s act of attaching the mortgaged truck
itself. Since herein appellee has chosen to exact the fulfillment of the appellant’s obligation, it may
enforce execution of the judgment that may be favorably rendered hereon, on all personal and real
properties of the latter not exempt from execution sufficient to satisfy such judgment. It should be
noted that a house and lot at San Jose, Antique were also attached. No one can successfully contest
that the attachment was merely an incident to an ordinary civil action.

SOUTHERN MOTORS, INC. vs. MOSCOSO

2 SCRA 168G.R. No. L-14475, May 30, 1961

FACTS:
Plaintiff Southern Motors, Inc. sold to defendant Angel Moscoso one Chevrolet truck on
installment basis,for P6,445.00. Upon making a down payment, the defendant executed a
promissory note for the sum of P4,915.00, representing the unpaid balance of the purchase price
to secure the payment of which, achattel mortgage was constituted on the truck in favor of the
plaintiff. Of said account, the defendant hadpaid a total of P550.00, of which P110.00 was
applied to the interest and P400.00 to the principal, thusleaving an unpaid balance of P4,475.00.
The defendant failed to pay 3 installments on the balance of thepurchase price.Plaintiff filed a
complaint against the defendant, to recover the unpaid balance of the promissory note.Upon
plaintiff's petition, a writ of attachment was issued by the lower court on the properties of
thedefendant. Pursuant thereto, the said Chevrolet truck, and a house and lot belonging to
defendant, wereattached by the Sheriff and said truck was brought to the plaintiff's compound
for safe keeping. Afterattachment and before the trial of the case on the merits, acting upon the
plaintiff's motion for theimmediate sale of the mortgaged truck, the Provincial Sheriff of Iloilo
sold the truck at public auction inwhich plaintiff itself was the only bidder for P1,OOO.OO. The
trial court condemned the defendant to paythe plaintiff the amount of P4,475.00 with interest at
the rate of 12% per annum from August 16, 1957,until fully paid, plus 10% thereof as attorneys
fees and costs. Hence, this appeal by the defendant.

ISSUE:
Whether or not the attachment caused to be levied on the truck and its immediate sale at public
auction,was tantamount to the foreclosure of the chattel mortgage on said truck.

HELD:
No.Article 1484 of the Civil Code provides that in a contract of sale of personal property the
price of which ispayable in installments, the vendor may exercise any of the following remedies:
(I) Exact fulfillment of the obligation, should the vendee fail to pay; (2) Cancel the sale, should
the vendee's failure to pay covertwo or more installments; and (3) Foreclose the chattel
mortgage on the thing sold, if one has beenconstituted, should the vendee's failure to pay cover
two or more installments. In this case, he shall haveno further action against the purchaser to
recover any unpaid balance of the price. Any agreement to thecontrary shall be void.The
plaintiff had chosen the first remedy. The complaint is an ordinary civil action for recovery of
theremaining unpaid balance due on the promissory note. The plaintiff had not adopted the
procedure ormethods outlined by Sec. 14 of the Chattel Mortgage Law but those prescribed for
ordinary civil actions,under the Rules of Court. Had the plaintiff elected the foreclosure, it
would not have instituted this casein court; it would not have caused the chattel to be attached
under Rule 59, and had it sold at publicauction, in the manner prescribed by Rule 39. That the
plaintiff did not intend to foreclose the mortgagetruck, is further evinced by the fact that it had
also attached the house and lot of the appellant at SanJose, Antique.We perceive nothing
unlawful or irregular in plaintiff's act of attaching the mortgaged truck itself. Sincethe plaintiff
has chosen to exact the fulfillment of the appellant's obligation, it may enforce execution of the
judgment that may be favorably rendered hereon, on all personal and real properties of the
latter notexempt from execution sufficient to satisfy such judgment. It should be noted that a
house and lot at SanJose, Antique were also attached. No one can successfully contest that the
attachment was merely anincident to an ordinary civil action. The mortgage creditor may
recover judgment on the mortgage debtand cause an execution on the mortgaged property and
may cause an attachment to be issued andlevied on such property, upon beginning his civil
action.

LORENZO PASCUAL and LEONILA TORRES

vs.
UNIVERSAL MOTORS CORPORATION

1. That the plaintiffs executed the real estate mortgage subject matter of this
complaint on December 14, 1960 to secure the payment of the indebtedness of PDP
Transit, Inc. for the purchase of five (5) units of Mercedez Benz trucks under invoices
Nos. 2836, 2837, 2838, 2839 and 2840 with a total purchase price or principal
obligation of P152,506.50 but plaintiffs' guarantee is not to exceed P50,000.00 which
is the value of the mortgage.

2. That the principal obligation of P152,506.50 was to bear interest at 1% a month

from December 14, 1960.

3. That as of April 5, 1961 with reference to the two units mentioned above and as of
May 22, 1961 with reference to the three units, PDP Transit, Inc., plaintiffs' principal,
had paid to the defendant Universal Motors Corporation the sum of P92,964.91, thus
leaving a balance of P68,641.69 including interest due as of February 8, 1965.

4. That the aforementioned obligation guaranteed by the plaintiffs under the Real
Estate Mortgage, subject of this action, is further secured by separate deeds of
 chattel mortgages on the Mercedez Benz units covered by the aforementioned
invoices in favor of the defendant Universal Motors Corporation.

5. That on March 19, 1965, the defendant Universal Motors Corporation filed a
complaint against PDP Transit, Inc. before, the Court of First Instance of Manila
docketed as Civil Case No. 60201 with a petition for a writ of Replevin, to collect the
balance due under the Chattel Mortgages and to repossess all the units to sold to
plaintiffs' principal PDP Transit, Inc. including the five (5) units guaranteed under the
subject Real (Estate) Mortgage.

In addition to the foregoing the Universal Motors Corporation admitted during the hearing that in its
suit (C.C. No. 60201) against the PDP Transit, Inc. it was able to repossess all the units sold to the
latter, including the five (5) units guaranteed by the subject real estate mortgage, and to foreclose all
the chattel mortgages constituted thereon, resulting in the sale of the trucks at public auction.

With the foregoing background, the spouses Lorenzo Pascual and Leonila Torres, the real estate
mortgagors, filed an action in the Court of First Instance of Quezon City (Civil Case No. 8189) for the
cancellation of the mortgage they constituted on two (2) parcels of land1 in favor of the Universal
Motors Corporation to guarantee the obligation of PDP Transit, Inc. to the extent of P50,000. The
court rendered judgment for the plaintiffs, ordered the cancellation of the mortgage, and directed the
defendant Universal Motors Corporation to pay attorney's fees to the plaintiffs in the sum of P500.00.
Unsatisfied with the decision, defendant interposed the present appeal.

In rendering judgment for the plaintiffs the lower court said in part: "... there does not seem to be any
doubt that Art. 14842 of the New Civil Code may be applied in relation to a chattel mortgage
constituted upon personal property on the installment basis (as in the present case) precluding the
mortgagee to maintain any further action against the debtor for the purpose of recovering whatever
balance of the debt secured, and even adding that any agreement to the contrary shall be null and
void."

The appellant now disputes the applicability of Article 1484 of the Civil Code to the case at bar on
the ground that there is no evidence on record that the purchase by PDP Transit, Inc. of the five (5)
trucks, the payment of the price of which was partly guaranteed by the real estate mortgage in
question, was payable in installments and that the purchaser had failed to pay two or more
installments. The appellant also contends that in any event what article 1484 prohibits is for the
vendor to recover from the purchaser the unpaid balance of the price after he has foreclosed the
chattel mortgage on the thing sold, but not a recourse against the security put up by a third party.

Both arguments are without merit. The first involves an issue of fact: whether or not the sale was one
on installments; and on this issue the lower court found that it was, and that there was failure to pay
two or more installments. This finding is not subject to review by this Court. The appellant's bare
allegation to the contrary cannot be considered at this stage of the case.

The next contention is that what article 1484 withholds from the vendor is the right to recover any
deficiency from the purchaser after the foreclosure of the chattel mortgage and not a recourse to the
additional security put up by a third party to guarantee the purchaser's performance of his obligation.
A similar argument has been answered by this Court in this wise: "(T)o sustain appellant's argument
is to overlook the fact that if the guarantor should be compelled to pay the balance of the purchase
price, the guarantor will in turn be entitled to recover what she has paid from the debtor vendee (Art.
2066, Civil Code); so that ultimately, it will be the vendee who will be made to bear the payment of
the balance of the price, despite the earlier foreclosure of the chattel mortgage given by him. Thus,
the protection given by Article 1484 would be indirectly subverted, and public policy overturned."
(Cruz vs. Filipinas Investment & Finance Corporation, L-24772, May 27, 1968; 23 SCRA 791).

The decision appealed from is affirmed, with costs against the defendant-appellant.

FILINVEST CREDIT CORPORATION vs CA 178 SCRA 188, G.R. No. 82508 September 29, 1989

FACTS:

Herein private respondents spouses Jose Sy Bang and Iluminada Tan were engaged in the sale of gravel
produced from crushed rocks and used for construction purposes. They intended to buy rock crusher
from Rizal Consolidated Corporation which carried a cash price tag of P550,000.00. They applied for
financial assistance from herein petitioner Filinvest Credit Corporation, who agreed to extend financial
aid on the certain conditions.

A contract of lease of machinery (with option to purchase) was entered into by the parties whereby the
private respondents agreed to lease from the petitioner the rock crusher for two years starting from July
5, 1981, payable as follows: P10,000.00 – first 3 months, P23,000.00 – next 6 months, P24,800.00 – next
15 months. It was likewise stipulated that at the end of the two-year period, the machine would be
owned by the private respondents. Thus the private respondent issued in favor of the petitioner a check
for P150,550.00, as initial rental (or guaranty deposit), and 24 postdated checks corresponding to the 24
monthly rentals. In addition, to guarantee their compliance with the lease contract, the private
respondent executed a real estate mortgage over two parcels of land in favor of the petitioner. The rock
crusher was delivered to the spouses.

However, 3 months later, the souses stopped payment when petitioner had not acted on the complaints
of the spouses about the machine. As a consequence, petitioner extra-judicially foreclosed the real
estate mortgage. The spouses filed a complaint before the RTC. The RTC rendered a decision in favor of
private respondent. The petitioner elevated the case to CA which affirmed the decision in toto. Hence,
this petition.

ISSUES:

1. Whether or not the nature of the contract is one of a contract of sale.

2. Whether or not the remedies of the seller provided for in Article 1484 are cumulative.

HELD:

1. Yes. The intent of the parties to the subject contract is for the so-called rentals to be the installment
payments. Upon the completion of the payments, then the rock crusher, subject matter of the contract,
would become the property of the private respondents. This form of agreement has been criticized as a
lease only in name.

Sellers desirous of making conditional sales of their goods, but who do not wish openly to make a
bargain in that form, for one reason or another, have frequently restored to the device of making
contracts in the form of leases either with options to the buyer to purchase for a small consideration at
the end of term, provided the so-called rent has been duly paid, or with stipulations that if the rent
throughout the term is paid, title shall thereupon vest in the lessee. It is obvious that such transactions
are leases only in name. The so-called rent must necessarily be regarded as payment of the price in
installments since the due payment of the agreed amount results, by the terms of bargain, in the
transfer of title to the lessee.

2. No, it is alternative. The seller of movable in installments, in case the buyer fails to pay 2 or more
installments, may elect to pursue either of the following remedies: (1) exact fulfillment by the purchaser
of the obligation; (2) cancel the sale; or (3) foreclose the mortgage on the purchased property if one was
constituted thereon. It is now settled that the said remedies are alternative and not cumulative, and
therefore, the exercise of one bars the exercise of the others. Indubitably, the device – contract of lease
with option to buy – is at times resorted to as a means to circumvent Article 1484, particularly
paragraph (3) thereof. Through the set-up, the vendor, by retaining ownership over the property in the
guise of being the lessor, retains, likewise the right to repossess the same, without going through the
process of foreclosure, in the event the vendee-lessee defaults in the payment of the installments.
There arises therefore no need to constitute a chattel mortgage over the movable sold. More important,
the vendor, after repossessing the property and, in effect, canceling the contract of sale, gets to keep all
the installments-cum-rentals already.

FILINVEST CREDIT CORPORATION vs. COURT OF APPEALS

G.R. No. 82508 September 29, 1989

Facts:

Spouses Sy Bang were engaged in the sale of gravel produced from crushed rocks and used for
construction purposes. In order to increase their production, they looked for a rock crusher which Rizal
Consolidated Corporation then had for sale. A brother of Sy Bang, went to inspect the machine at the
Rizal Consolidated’s plant site. Apparently satisfied with the machine, the private respondents signified
their intent to purchase the same.

Since he does not have the financing capability, Sy Bang applied for financial assistance from Filinvest
Credit Corporation. Filinvest agreed to extend financial aid on the following conditions: (1) that the
machinery be purchased in the petitioner’s name; (2) that it be leased with option to purchase upon the
termination of the lease period; and (3) that Sy Bang execute a real estate mortgage as security for the
amount advanced by Filinvest. A contract of lease of machinery (with option to purchase) was entered
into by the parties whereby they to lease from the petitioner the rock crusher for two years. The contract
likewise stipulated that at the end of the two-year period, the machine would be owned by Sy Bang.

3 months from the date of delivery, Sy Bang claiming that they had only tested the machine that month,
sent a letter-complaint to the petitioner, alleging that contrary to the 20 to 40 tons per hour capacity of the
machine as stated in the lease contract, the machine could only process 5 tons of rocks and stones per
hour. They then demanded that the petitioner make good the stipulation in the lease contract. Sy Bang
stopped payment on the remaining checks they had issued to the petitioner.

As a consequence of the non-payment, Filinvest extrajudicially foreclosed the real estate mortgage.

Issue:

WON the real transaction was lease or sale? SALE ON INSTALLMENTS.

Held:

The real intention of the parties should prevail. The nomenclature of the agreement cannot change its
true essence, i.e., a sale on installments. It is basic that a contract is what the law defines it and the
parties intend it to be, not what it is called by the parties. It is apparent here that the intent of the parties to
the subject contract is for the so-called rentals to be the installment payments. Upon the completion of the
payments, then the rock crusher, subject matter of the contract, would become the property of the private
respondents. This form of agreement has been criticized as a lease only in name.

Sellers desirous of making conditional sales of their goods, but who do not wish openly to make a bargain
in that form, for one reason or another, have frequently resorted to the device of making contracts in the
form of leases either with options to the buyer to purchase for a small consideration at the end of term,
provided the so-called rent has been duly paid, or with stipulations that if the rent throughout the term is
paid, title shall thereupon vest in the lessee. It is obvious that such transactions are leases only in name.
The so-called rent must necessarily be regarded as payment of the price in installments since the due
payment of the agreed amount results, by the terms of bargain, in the transfer of title to the lessee.

Indubitably, the device contract of lease with option to buy is at times resorted to as a means to
circumvent Article 1484, particularly paragraph (3) thereof.Through the set-up, the vendor, by retaining
ownership over the property in the guise of being the lessor, retains, likewise, the right to repossess the
same, without going through the process of foreclosure, in the event the vendee-lessee defaults in the
payment of the installments. There arises therefore no need to constitute a chattel mortgage over the
movable sold. More important, the vendor, after repossessing the property and, in effect, canceling the
contract of sale, gets to keep all the installments-cum-rentals already paid.

Even if there was a contract of sale, Filinvest is still not liable because Sy Bang is presumed to be more
knowledgeable, if not experts, on the machinery subject of the contract, they should not therefore be
heard now to complain of any alleged deficiency of the said machinery. It was Sy Bang who was
negligent, not Filinvest. Further, Sy Bang is precluded to complain because he signed a Waiver of
Warranty.

Luis Ridad and Lourdes Ridad, plaintiffs-appellees, v

Filipinas Investment and Finance Corporation, Jose D. Sebastian and Jose San Agustin, in his
capacity as Sheriff, defendants-appellants

 Plaintiffs purchased from Supreme Sales and Development Corporation (Supreme) 2 brand new Ford
Consul Sedans, for P26,887 payable in 24 monthly installments.
 To secure payment thereof, plaintiffs executed a promissory note covering the purchase price and a deed
of chattel mortgage on the two vehicles purchased and also on another car (Chevrolet) and plaintiff’s
franchise or certificate of public convenience granted by the defunct Public Service Commission for the
operation of a taxi fleet.
 With the conformity of plaintiffs, the vendor Supreme assigned its rights, title and interest to the
promissory note and chattel mortgage to the defendant Filipinas Investment and Finance Corporation.
 Plaintiffs failed to pay their monthly installments. Filipinas foreclosed the chattel mortgage extra-
judicially.
 During the public auction, of which the plaintiffs were not notified, the 2 Ford Consul cars were bought
by defendant Filipinas, who was as the highest bidder. During another public auction, the rest of the
 properties (including the taxi franchise) subject of the chattel mortgage were sold, and bought by
defendant Filipinas also.
 Filipinas subsequently sold the taxi franchise to defendant Jose D. Sebastian, who filed with the Public
Service Commission an application for approval of said sale.
 Plaintiffs then filed an action for annulment of contract before the CFI, against Filipinas, Sebastian, and
Sheriff San Agustin.
 CFI ruling: The chattel mortgage was null and void in so far as the taxi franchise and the used Chevrolet
car were concerned, and the sale at public auction of the taxicab franchise was to be of no legal effect.
The Certificate of Sale issued by the Sheriff of Manila in favor of Filipinas concerning the taxi franchise
was cancelled and set aside. The assignment made by Filipinas in favor of Jose Sebastian was also
declared void and of no legal effect.
 The CA certified the defendants’ appeal to the SC.

Issue: Is the chattel mortgage and its subsequent sale valid? NO

Ratio:

1) Article 1484 of the Civil Code is applicable. Under this article, the vendor of personal property the
purchase price of which is payable in installments, has the right, should the vendee default in the
payment of two or more of the agreed installments, to exact fulfillment by the purchaser of the
obligation, or to cancel the sale, or to foreclose the mortgage on the purchased personal property, if one
was constituted. The vendor can only choose one option.
2) If the vendor avails himself of the right to foreclose the mortgage, the law prohibits him from further
bringing an action against the vendee for the purpose of recovering whatever balance of the debt
secured is not satisfied by the foreclosure sale.
3) Purpose of the law is to prevent mortgagees from seizing the mortgaged property, buying it at
foreclosure sale for a low price and the bringing suit against the mortgagor for a deficiency judgment.
a. Without the law, the mortgagor-buyer would find himself without the property and still owing
practically the full amount of his original debt.
4) In this case, defendant Filipinas chose to foreclose the mortgage upon default of plaintiffs, and bought
the vehicles at the public auction as the highest bidder.
a. Filipinas is deemed to have renounced any and all rights which it might otherwise have under the
promissory note and the chattel mortgage as well as the payment of the unpaid balance.
5) The lower court rightly declared the nullity of the chattel mortgage in so far as the taxi franchise and the
Chevrolet were concerned, under the authority of the ruling in the case of Levy Hermanos, Inc. v Pacific
Commercial Co., et al.
6) The vendor’s right to foreclose is limited only on the thing sold.
7) The vendor of personal property sold on installment is precluded, after foreclosing the chattel mortgage
on the thing sold, from having a recourse against the additional security put up by a third party to
guarantee the purchaser’s performance of his obligation. (Cruz v Filipinos Investment & Finance Corporation)
a. Otherwise, if the vendee could still be compelled to pay the balance of the purchase price, the
vendee will be made to bear the payment of the balance despite the earlier foreclosure.
Judgment appealed from is affirmed.

RIDAD V FILIPINAS

Facts: The spouses Ridad purchased from the Supreme Sales Development Corporation
two (2) brand new Ford Consul Sedans complete with accessories. To secure payment
thereof, plaintiffs executed on the same date a promissory note covering the purchase price
and a deed of chattel mortgage not only on the two vehicles purchased but also on another
car (Chevrolet) and their franchise or certificate of public convenience granted by the
defunct Public Service Commission for the operation of a taxi fleet with Filipinas Investment.

Due to the failure of the plaintiffs to pay their monthly installments as per promissory note,
Filipinas Investment foreclosed on the chattel mortgage on the Ford Consul Sedans. The
foreclosure sale had a deficiency. Consequently, the corporation foreclosed the mortgage
constituted on the (Chevrolet) and their franchise or certificate of public convenience.

Issue: Whether Filipinas Investment is precluded from foreclosing the second mortgage to
recover the deficiency on the first mortgage

Held: No. The vendor of personal property sold on the installment basis is precluded, after
foreclosing the chattel mortgage on the thing sold from having a recourse against the
additional security put up by a third party to guarantee the purchaser’s performance of his
obligation on the theory that to sustain the same would overlook the fact that if the
guarantor should be compelled to pay the balance of the purchase price, said guarantor will
in turn be entitled to recover what he has paid from the debtor-vendee, and ultimately it will
be the latter who will be made to bear the payment of the of the balance of the price,
despite the earlier foreclosure of the chattel mortgage given by him, thereby indirectly
subverting the protection given the latter.

If the vendor under such circumstance is prohibited from having a recourse against the
additional security for reasons therein stated, there is no ground why such vendor should
not likewise be precluded from further extrajudicially foreclosing the additional security put
up by the vendees themselves, as in the instant case, it being tantamount to a further action
5 that would violate Article 1484 of the Civil Code, for then is actually no between an
additional security put up by the vendee himself and such security put up by a third party
insofar as how the burden would ultimately fall on the vendee himself is concerned.

Luis Ribad vs Filipinas Investment and Finance Corp

Facts:

On April 14, 1964, plaintiffs purchased from the Supreme Sales arid Development Corporation two (2)
brand new Ford Consul Sedans complete with accessories, for P26,887 payable in 24 monthly
installments. To secure payment thereof, plaintiffs executed on the same date a promissory note covering
the purchase price and a deed of chattel mortgage not only on the two vehicles purchased but also on
another car (Chevrolet) and plaintiffs' franchise or certificate of public convenience granted by the defunct
Public Service Commission for the operation of a taxi fleet. Then, with the conformity of the plaintiffs, the
vendor assigned its rights, title and interest to the above-mentioned promissory note and chattel
mortgage to defendant Filipinas Investment and Finance Corporation.

Due to the failure of the plaintiffs to pay their monthly installments as per promissory note, the defendant
corporation foreclosed the chattel mortgage extra-judicially, and at the public auction sale of the two Ford
Consul cars, of which the plaintiffs were not notified, the defendant corporation was the highest bidder
and purchaser. Another auction sale was held on November 16, 1965, involving the remaining properties
subject of the deed of chattel mortgage since plaintiffs' obligation was not fully satisfied by the sale of the
aforesaid vehicles, and at the public auction sale, the franchise of plaintiffs to operate five units of taxicab
service was sold for P8,000 to the highest bidder, herein defendant corporation, which subsequently sold
and conveyed the same to herein defendant Jose D. Sebastian, who then filed with the Public Service
Commission an application for approval of said sale in his favor.

On February 21, 1966, plaintiffs filed an action for annulment of contract before the Court of First Instance
of Rizal, Branch I, with Filipinas Investment and Finance Corporation, Jose D. Sebastian and Sheriff Jose
San Agustin, as party-defendants. By agreement of the parties, the case was submitted for decision in the
lower court on the basis of the documentary evidence adduced by the parties during the pre-trial
conference. Thereafter, the lower court declared the chattel mortgage to be null and void in so far as the
taxicab franchise and the used Chevrolet car of plaintiffs are concerned, and the sale at public auction
conducted by the City Sheriff of Manila concerning said taxicab franchise, to be of no legal effect.
Issue:The validity of the chattel mortgage in so far as the franchise and the subsequent sale thereof are
concerned.

Ruling:
The resolution of said issue is unquestionably governed by the provisions of Article 1484 of the Civil
Code.

The precise purpose of the law is to prevent mortgagees from seizing the mortgaged property, buying it at
foreclosure sale for a low price and then bringing suit against the mortgagor for a deficiency judgment,
otherwise, the mortgagor-buyer would find himself without the property and still owing practically the full
amount of his original indebtedness.

The lower court rightly declared the nullity of the chattel mortgage in question in so far as the taxicab
franchise and the used Chevrolet car of plaintiffs are concerned, under the authority of the ruling in the
case of Levy Hermanos, Inc. vs. Pacific Commercial Co., et al., 71 Phil. 587, the facts of which are similar
to those in the case at bar. There, we have the same situation wherein the vendees offered as security for
the payment of the purchase price not only the motor vehicles which were bought on installment, but also
a residential lot and a house of strong materials. This Court sustained the pronouncement made by the
lower court on the nullity of the mortgage in so far as it included the house and lot of the vendees, holding
that under the law, should the vendor choose to foreclose the mortgage, he has to content himself with
the proceeds of the sale at the public auction of the chattels which were sold on installment and
mortgaged to him and having chosen the remedy of foreclosure, he cannot nor should he be allowed to
insist on the sale of the house and lot of the vendees, for to do so would be equivalent to obtaining a writ
of execution against them concerning other properties which are separate and distinct from those which
were sold on installment. This would indeed be contrary to public policy and the very spirit and purpose of
the law, limiting the vendor's right to foreclose the chattel mortgage only on the thing sold.
De La Cruz v Asian Consumer (CHECK FULLTEXT)

Doctrine: In this jurisdiction, the three (3) remedies provided for in the "Recto Law" are alternative and not
cumulative; the exercise of one would preclude the other remedies. Consequently, should the vendee-mortgagor
default in the payment of two or more of the agreed installments, the vendor-mortgagee has the option to avail of
any of these three (3) remedies: either to exact fulfillment of the obligation, to cancel the sale, or to foreclose the
mortgage on the purchased chattel, if one was constituted.

Facts:

Spouses Romulo de la Cruz and Delia de la Cruz, and one Daniel Fajardo, petitioners, purchased on installment
basis one (1) truck from Benter Motor Sales Corporation (BENTER for brevity). To secure payment, they executed
in favor of BENTER a chattel mortgage over the vehicle 1 and a promissory note payable in thirty (30) monthly
installments of P9,412.00. On the same date, BENTER assigned its rights and interest over the vehicle in favor of
private respondent Asian Consumer and Industrial Finance Corporation (ASIAN for brevity).

Pets defaulted on more than two (2) installments. Thereafter, notwithstanding the demand letter of ASIAN,
petitioners failed to settle their obligation.

By virtue of a petition for extrajudicial foreclosure of chattel mortgage, the sheriff attempted to repossess the
vehicle but was unsuccessful because of the refusal of the son of petitioner, Rolando de la Cruz to surrender the
same. Hence, the return of the sheriff that the service was not satisfied.

Romulo de la Cruz brought the vehicle to the office of ASIAN and left it there where it was inventoried and
inspected.

ASIAN filed an ordinary action with the court a quo for collection of the balance of P196,152.99 of the purchase
price, plus liquidated damages and attorney's fees.

TC: pro- ASIAN

CA: Affirmed TC

". . . no extrajudicial foreclosure of chattel mortgage ever transpired in the case at bar. Undoubtedly, plaintiff had
first chosen to extrajudically foreclose the mortgage, but this did not materialize through no fault of plaintiff, as
defendant refused to surrender the Hino truck.”

"Though the remedy of foreclosure was first chosen, this remedy however proved ineffectual due to no fault of
plaintiff. Therefore, plaintiff may exercise other remedies such as exact fulfillment of the obligation and thereafter
recover the deficiency. This is the essence of the rule of alternative remedies under Article 1484."

Petitioners take exception. While they do not dispute that where the mortgagee elects the remedy of foreclosure
which, according to them, includes the option to sell in a public or private sale, commences and pursues it, and in
consideration of which he also performs everything that is incumbent upon him to do to implement the
foreclosure they nevertheless insist that he should not later be allowed to change course midway in the process,
abandon the foreclosure and shift to other remedies such as collection of the balance, especially after having
recovered the mortgaged chattel from them and while retaining possession thereof.

Issue: Whether or not a chattel mortgagee, after opting to foreclose the mortgage but failing afterwards to sell
the property at public auction, may still sue to recover the unpaid balance of the purchase price.

Held: Yes.

It is not disputed that the instant case is covered by the so-called "Recto Law", now Art. 1484 of the New Civil
Code, which provides:

"In a contract of sale of personal property the price of which is payable in installments, the vendor may exercise
any of the following remedies: (1) Exact fulfillment of the obligation, should the vendee fail to pay; (2) Cancel the
sale, should the vendee's failure to pay cover two or more installments; (3) Foreclose the chattel mortgage on the
thing sold, if one has been constituted, should the vendee's failure to pay cover two or more installments. In this
case, he shall have no further action against the purchaser to recover any unpaid balance of the price. Any
agreement to the contrary shall be void."

In this jurisdiction, the three (3) remedies provided for in the "Recto Law" are alternative and not cumulative; the
exercise of one would preclude the other remedies. Consequently, should the vendee-mortgagor default in the
payment of two or more of the agreed installments, the vendor-mortgagee has the option to avail of any of these
three (3) remedies: either to exact fulfillment of the obligation, to cancel the sale, or to foreclose the mortgage on
the purchased chattel, if one was constituted.

The records show that ASIAN initiated a petition for extrajudicial foreclosure of the chattel mortgage. But the
sheriff failed to recover the motor vehicle. It was not until 10 October 1984, or almost a month later that
petitioners delivered the unit to ASIAN. The action to recover the balance of the purchase price was instituted
It is thus clear that while ASIAN eventually succeeded in taking possession of the mortgaged vehicle, it did not
pursue the foreclosure of the mortgage as shown by the fact that no auction sale of the vehicle was ever
conducted.

In the case before Us, there being no actual foreclosure of the mortgaged property, ASIAN is correct in resorting to
an ordinary action for collection of the unpaid balance of the purchase price.

Agustin v. Court of Appeals

The dispute stemmed from an unpaid promissory note dated October 28, 1970, executed by
petitioner Leovillo C. Agustin in favor of ERM Commercial for the amount of P43,480.80. The note
was payable in monthly installments3and secured by a chattel mortgage over an Isuzu diesel
truck,4 both of which were subsequently assigned to private respondent Filinvest Finance
Corporation.5 When petitioner defaulted in paying the installments, private respondent demanded
from him the payment of the entire balance or, in lieu thereof, the possession of the mortgaged
vehicle. Neither payment nor surrender was made. Aggrieved, private respondent filed a complaint
with the Regional Trial. Court of Manila, Branch 26 (RTC Branch 26) against petitioner praying for
the issuance of a writ of replevin or, in the alternative, for the. payment of P32,723.97 plus interest at
the rate of 14% per annum from due date until fully paid.6 Trial ensued and, thereafter, a writ of
replevin was issued by RTC Branch 26. By virtue thereof, private respondent acquired possession of
the vehicle. Upon repossession, the latter discovered that the vehicle was no longer in running
condition and that several parts were missing which private respondent replaced. The vehicle was
then foreclosed and sold at public auction.

Private respondent subsequently filed a "supplemental complaint" claiming additional reimbursement

worth P8,852.76 as value of replacement parts7 and for expenses incurred in transporting the
mortgaged vehicle from Cagayan to Manila. In response, petitioner moved to dismiss the
supplemental complaint arguing that RTC Branch 26 had already lost jurisdiction over the case
because of the earlier extra-jurisdicial foreclosure of the mortgage. The lower court granted the
motion and the case was dismissed. Private respondent elevated the matter to the appellate court,
docketed as CA-G.R. No. 56718-R, which set aside the order of dismissal and ruled that
repossession expenses incurred by private respondent should be reimbursed.9 This decision
became final and executory, hence the case was accordingly remanded to the Regional Trial Court
of Manila, Branch 40 (RTC Branch 40) for reception of evidence to determine the amount due from
petitioner. 10 After trial, RTC Branch 40 found petitioner liable for the repossession expenses,
attorney's fees, liquidated damages, bonding fees and other expenses in the seizure of the vehicle in
the aggregate sum of P18,547.38. Petitioner moved for reconsideration. Acting thereon, RTC Branch
40 modified its decision by lowering the monetary award to P8,852.76, the amount originally prayed
for in the supplemental complaint. 11 Private respondent appealed the case with. respect to the
reduction of the amount awarded. Petitioner, likewise, appealed impugning the trial court's order for
him to pay private respondent P8,852.76, an amount over and above the value received from the
foreclosure sale. Both appeals were consolidated and in CA-G.R. No. 24684, the modified order of
RTC Branch 40 was affirmed. Petitioner filed a motion for reconsideration, but to no avail. 12 Hence,
this petition for review on certiorari.

Petitioner contends that. the award of repossession expenses to private respondent as mortgagee is
"contrary to the letter, intent and spirit of Article 1484 13 of the Civil Code". 14 He asserts that private
respondent's repossession expenses have been amply covered by the foreclosure of the chattel
mortgage, hence he could no longer be held liable. The arguments are devoid of merit.

Petitioner's contentions, we note, were previously rejected by respondent court in its decision in CA-
G.R No. 56718-R the dispositive portion of which provides as follows:

WHEREFORE, the order dismissing the case is hereby set aside and the case is
remanded to the lower court for reception of evidence of 'expenses properly incurred
in effecting seizure of the chattel (and) of recoverable attorney's fees in prosecuting
the action for replevin" as "repossession expenses" prayed for in the supplemental
complaint, without pronouncement as to costs. 15

which ruling has long acquired finality. It is clear, therefore, that the appellate court had
already settled the propriety of awarding repossession expenses in favor of private
respondent. The remand of the case to RTC Branch 40 was for the sole purpose of threshing
out the correct amount of expenses and not for relitigating the accuracy of the award. Thus,
the findings of RTC Branch 40, as affirmed by the appellate court in CA-G.R. No. 24684,
were confined to the appreciation of evidence relative to the repossession expenses for the
query or issue passed upon by the respondent court in CA-G.R. No. 56718-R (propriety of
the award for repossession expenses) has become the "law of the case". This principle is
defined as "a term applied to an established rule that when an appellate court passes on a
 question and remands the cause to the lower court for further proceedings, the question
there settled becomes the law of the case upon subsequent appeal." 16Having exactly the
same parties and issues, the decision in the former appeal (CA-G.R. No. 56718-R) is now
the established and controlling rule. Petitioner may not therefore be allowed in a subsequent
appeal (CA-G.R. No. 24684) and in this petition to resuscitate and revive formerly settled
issues. Judgment of courts should attain finality at some point in time, as in this case,
otherwise, there will be no end to litigation.

At any rate, even if we were to brush aside the "law of the case" doctrine we find the award
for repossession expenses still proper. In Filipinas Investment & Finance Corporation
v. Ridad, 17 the Court recognized an exception to the rule stated under Art. 1484(3) upon
which petitioner relies. Thus:

. . . Where the mortgagor plainly refuses to deliver the chattel subject of the
mortgage upon his failure to pay two or more installments, or if he conceals the
chattel to place it beyond the reach of the mortgagee, what then is the mortgagee
expected to do? . . . It logically follows as a matter of common sense, that the
necessary expenses incurred in the prosecution by the mortgagee of the action for
replevin so that he can regain possession of the chattel, should be borne by the
mortgagor. Recoverable expenses would, in our view, include expenses properly
incurred in effecting seizure of the chattel and reasonable attorney's fees in
prosecuting the action for replevin. 18

Anent the denial of the award for attorney's fees, we find the same in order. The trial court,
as well as respondent court, found no evidence to support the claim for; attorney's fees
which factual finding is binding on us. 19 We find no compelling reason, and none was
presented, to set aside this ruling.

ACCORDINGLY, the petition is DENIED for lack of merit, and the decision of the Court of
Appeals is hereby AFFIRMED in toto.

SO ORDERED.

Agustin v. Court of Appeals

Facts: Leovillo C. Agustin executed a promissory note in favor of ERM Commercial for the
amount ofP43,480.80 (ERM). The note was payable in monthly installments and secured
by a chattel mortgage over an Isuzu diesel truck, both of which were subsequently assigned
to private respondent Filinvest Finance Corporation. When petitioner defaulted in paying the
installments, private respondent demanded from him the payment of the entire balance or,
in lieuthereof, the possession of the mortgaged vehicle. Neither payment nor surrender was
made.

Aggrieved, private respondent filed a complaint with the Regional Trial Court of Manila,
Branch 26 (RTC Branch 26) against petitioner praying for the issuance of a writ of replevin o
Trial ensued and, thereafter, a writ of replevin was issued by RTC Branch 26. By virtue
thereof, private respondent acquired possession of the vehicle. Upon repossession, the
latter discovered that the vehicle was no longer in running condition and that several parts
were missing which private respondent replaced. The vehicle was then foreclosed and sold
at public auction. Petitioner contends that the award of repossession expenses to private
respondent as mortgagee is “contrary to the letter, intent and spirit of Article 1484 of the
Civil Code”. He asserts that private respondent’s repossession expenses have been amply
covered by the foreclosure of the chattel mortgage, hence he could no longer be held liable.

Issue: Whether or not mortgagor is liable to pay expenses as a result of the enforcement of
the foreclosure.

Held: Where the mortgagor plainly refuses to deliver the chattel subject of the mortgage
upon his failure to pay two or more installments, or if he conceals the chattel to place it
beyond the reach of the mortgagee, he may be held liable to pay expenses as a result of
the enforcement of the foreclosure. It logically follows as a matter of common sense, that
the necessary expenses incurred in the prosecution by the mortgagee of the action for
replevin so that he can regain possession of the chattel, should be borne by the mortgagor.
Recoverable expenses would, in our view, include expenses properly incurred in effecting
seizure of the chattel and reasonable attorney’s fees in prosecuting the action for replevin.
 Fiestan vs. Court of Appeals, and Developmentt Bank of the Philippines
185 SCRA 751
May 1990

FACTS:

For failure of petitioner spouses Dionisio Fiestan and Juanita Arconada (spouses Fiestan) to pay their
mortgage indebtedness to respondent Development Bank of the Philippines (DBP), the latter was able
to acquire at a public auction sale on August 6, 1979 the parcel of land (Lot No. 2-B covered by TCT No.
T-13218) that the spouses Fiestan owned in Ilocos Sur after extrajudicial foreclosure of said property.
The Provincial Sheriff issued a certificate of sale that same day which was registered on September 28
in the Office of the Register of Deeds of Ilocos Sur. Earlier, or on September 26, spouses Fiestan also
executed a Deed of Sale in favor of DBP which was likewise registered on September 28, 1979. When
spouses Fiestan failed to redeem their parcel of land within the 1 year period which expired on
September 28, 1980, the Register of Deeds cancelled their title over the subject property and issued
TCT No. T-19077 to DBP upon the latter’s duly executed affidavit of consolidation of ownership.

On April 13, 1982, the DBP sold the lot to Francisco Peria, so the Register of Deeds of Ilocos Sur
cancelled DBP’s title over said property and issued TCT No. T-19229 to Peria’s name, who later secured
a tax declaration for said lot and accordingly paid the taxes due thereon. He thereafter mortgaged said
lot to the PNB-Vigan Branch as security for his loan of P115,000.00. Since the spouses Fiestan were still
in possession of the property, the Provincial Sheriff ordered them to vacate the premises, but instead
of leaving, they filed a complaint in the RTC of Vigan, Ilocos Sur for annulment of sale, mortgage and
cancellation of transfer certificates of title against the DBP-Laoag City, PNB-Vigan Branch, Ilocos Sur,
Francisco Peria and the Register of Deeds of Ilocos Sur.

The lower court dismissed said complaint, declaring valid the extrajudicial foreclosure sale of the
mortgaged property in favor of the DBP and its subsequent sale to Francisco Peria as well as the real
estate mortgage constituted in favor of PNB-Vigan. The Court of Appeals likewise affirmed said
decision. The spouses Fiestan herein seek to annul the extrajudicial foreclosure sale of the mortgaged
property on the ground that the Provincial Sheriff conducted the foreclosure without first effecting a
levy on said property before selling the same at the public auction sale.

ISSUE:

Who has the right to acquire by purchase the subject property?

COURT RULING:

In denying the petition, the Supreme Court reiterated that the formalities of a levy, which the
Provincial Sheriff of Ilocos Sur allegedly failed to comply with, are not basic requirements before an
extrajudicially foreclosed property can be sold at public auction. The spouses Fiestan insisted that
what prevails over the case are par. (2) of Article 1491 and par. (7) of Article 1409 of the Civil Code
which prohibits agents from acquiring by purchase, even at a public or judicial auction either in person
or through the mediation of another, the property whose administration or sale may have been
entrusted to them unless the consent of the principal has been given. However, the Supreme Court
ruled that the power to foreclose is not an ordinary agency that contemplates exclusively the
representation of the principal by the agent but is primarily an authority conferred upon the mortgagee
for the latter's own protection, as provided under Section 5 of Act No 3135, as amended, which is a
special law that must prevail over the Civil Code which is a general law. Even in the absence of
statutory provision, there is authority to hold that a mortgagee, and in this case the DBP, may purchase
at a sale under his mortgage to protect his own interest or to avoid a loss to himself by a sale to a third
person at a price below the mortgage debt.

Southern Motors vs. Moscoso

Facts:

Southern Motors sold to Moscoso one Chevrolet truck on installment basis. Upon making a
downpayment, Moscoso executed a promissory note representing the unpaid balance of the purchase
price. To secure payment, a chattel mortgage was constituted on the truck in favor of Southern
Motors. Moscoso failed to pay 3 installments. Subsequently, Southern Motors filed a complaint
against him to recover the unpaid balance of the promissory note. A writ of attachment was issued.
The Chevrolet truck and a house and lot belonging to Moscoso were attached by the sheriff. After
attachment but before the trial of the case, the Prov Sheriff sold the truck at a public auction,
Southern Motors being the only bidder, purchased the same. Trial court then rendered a decision
against Moscoso.

Arguments:

S. Motors: claims that in filing the complaint, demanding payment of the unpaid balance of the
purchase price, it has availed of the first remedy provided in said article i.e. to exact fulfillment of the
obligation (specific performance)

Moscoso: contends that appellee had availed itself of the third remedy viz, the foreclosure of the
chattel mortgage on the truck. He submits that the matter should be looked at, not by the allegations
in the complaint, but by the very effect and result of the procedural steps taken and that appellee tried
to camouflage its acts by filing a complaint purportedly to exact the fulfillment of an obligation
petition, in an attempt to circumvent the provisions of Article 1484 of the new Civil Code. He
concludes that under his theory, a deficiency judgment would be without legal basis.

Issue:

What did S. Motors availed of under Art. 1484 of the Civil Code, the first remedy (Exact fulfillment
of the obligation) or the third (Foreclose the chattel mortgage on the thing sold, if one has been
constituted, should the vendee’s failure to pay cover two or more installments. In this case, he shall
have no further action against the purchaser to recover any unpaid balance of the price. Any
agreement to the contrary shall be void.)?

Held:

Manifestly, the appellee had chosen the first remedy. The complaint is an ordinary civil action for
recovery of the remaining unpaid balance due on the promissory note. The plaintiff had not adopted
the procedure or methods outlined by Sec. 14 of the Chattel Mortgage Law but those prescribed for
ordinary civil actions, under the Rules of Court. Had appellee elected the foreclosure, it would not
have instituted this case in court; it would not have caused the chattel to be attached under Rule 59,
and had it sold at public auction, in the manner prescribed by Rule 39. That the herein appellee did
not intend to foreclose the mortgage truck, is further evinced by the fact that it had also attached the
house and lot of the appellant at San Jose, Antique.

The court perceived nothing unlawful or irregular in appellee’s act of attaching the mortgaged truck
itself. Since herein appellee has chosen to exact the fulfillment of the appellant’s obligation, it may
enforce execution of the judgment that may be favorably rendered hereon, on all personal and real
properties of the latter not exempt from execution sufficient to satisfy such judgment. It should be
noted that a house and lot at San Jose, Antique were also attached. No one can successfully contest
that the attachment was merely an incident to an ordinary civil action.

SOUTHERN MOTORS, INC. vs. MOSCOSO

2 SCRA 168G.R. No. L-14475, May 30, 1961

FACTS:
Plaintiff Southern Motors, Inc. sold to defendant Angel Moscoso one Chevrolet truck on
installment basis,for P6,445.00. Upon making a down payment, the defendant executed a
promissory note for the sum of P4,915.00, representing the unpaid balance of the purchase price
to secure the payment of which, achattel mortgage was constituted on the truck in favor of the
plaintiff. Of said account, the defendant hadpaid a total of P550.00, of which P110.00 was
applied to the interest and P400.00 to the principal, thusleaving an unpaid balance of P4,475.00.
The defendant failed to pay 3 installments on the balance of thepurchase price.Plaintiff filed a
complaint against the defendant, to recover the unpaid balance of the promissory note.Upon
plaintiff's petition, a writ of attachment was issued by the lower court on the properties of
thedefendant. Pursuant thereto, the said Chevrolet truck, and a house and lot belonging to
defendant, wereattached by the Sheriff and said truck was brought to the plaintiff's compound
for safe keeping. Afterattachment and before the trial of the case on the merits, acting upon the
plaintiff's motion for theimmediate sale of the mortgaged truck, the Provincial Sheriff of Iloilo
sold the truck at public auction inwhich plaintiff itself was the only bidder for P1,OOO.OO. The
trial court condemned the defendant to paythe plaintiff the amount of P4,475.00 with interest at
the rate of 12% per annum from August 16, 1957,until fully paid, plus 10% thereof as attorneys
fees and costs. Hence, this appeal by the defendant.

ISSUE:
Whether or not the attachment caused to be levied on the truck and its immediate sale at public
auction,was tantamount to the foreclosure of the chattel mortgage on said truck.

HELD:
No.Article 1484 of the Civil Code provides that in a contract of sale of personal property the
price of which ispayable in installments, the vendor may exercise any of the following remedies:
(I) Exact fulfillment of the obligation, should the vendee fail to pay; (2) Cancel the sale, should
the vendee's failure to pay covertwo or more installments; and (3) Foreclose the chattel
mortgage on the thing sold, if one has beenconstituted, should the vendee's failure to pay cover
two or more installments. In this case, he shall haveno further action against the purchaser to
recover any unpaid balance of the price. Any agreement to thecontrary shall be void.The
plaintiff had chosen the first remedy. The complaint is an ordinary civil action for recovery of
theremaining unpaid balance due on the promissory note. The plaintiff had not adopted the
procedure ormethods outlined by Sec. 14 of the Chattel Mortgage Law but those prescribed for
ordinary civil actions,under the Rules of Court. Had the plaintiff elected the foreclosure, it
would not have instituted this casein court; it would not have caused the chattel to be attached
under Rule 59, and had it sold at publicauction, in the manner prescribed by Rule 39. That the
plaintiff did not intend to foreclose the mortgagetruck, is further evinced by the fact that it had
also attached the house and lot of the appellant at SanJose, Antique.We perceive nothing
unlawful or irregular in plaintiff's act of attaching the mortgaged truck itself. Sincethe plaintiff
has chosen to exact the fulfillment of the appellant's obligation, it may enforce execution of the
judgment that may be favorably rendered hereon, on all personal and real properties of the
latter notexempt from execution sufficient to satisfy such judgment. It should be noted that a
house and lot at SanJose, Antique were also attached. No one can successfully contest that the
attachment was merely anincident to an ordinary civil action. The mortgage creditor may
recover judgment on the mortgage debtand cause an execution on the mortgaged property and
may cause an attachment to be issued andlevied on such property, upon beginning his civil
action.

LORENZO PASCUAL and LEONILA TORRES

vs.
UNIVERSAL MOTORS CORPORATION

1. That the plaintiffs executed the real estate mortgage subject matter of this
complaint on December 14, 1960 to secure the payment of the indebtedness of PDP
Transit, Inc. for the purchase of five (5) units of Mercedez Benz trucks under invoices
Nos. 2836, 2837, 2838, 2839 and 2840 with a total purchase price or principal
obligation of P152,506.50 but plaintiffs' guarantee is not to exceed P50,000.00 which
is the value of the mortgage.

2. That the principal obligation of P152,506.50 was to bear interest at 1% a month

from December 14, 1960.

3. That as of April 5, 1961 with reference to the two units mentioned above and as of
May 22, 1961 with reference to the three units, PDP Transit, Inc., plaintiffs' principal,
had paid to the defendant Universal Motors Corporation the sum of P92,964.91, thus
leaving a balance of P68,641.69 including interest due as of February 8, 1965.

4. That the aforementioned obligation guaranteed by the plaintiffs under the Real
Estate Mortgage, subject of this action, is further secured by separate deeds of
chattel mortgages on the Mercedez Benz units covered by the aforementioned
invoices in favor of the defendant Universal Motors Corporation.

5. That on March 19, 1965, the defendant Universal Motors Corporation filed a
complaint against PDP Transit, Inc. before, the Court of First Instance of Manila
docketed as Civil Case No. 60201 with a petition for a writ of Replevin, to collect the
balance due under the Chattel Mortgages and to repossess all the units to sold to
plaintiffs' principal PDP Transit, Inc. including the five (5) units guaranteed under the
subject Real (Estate) Mortgage.
In addition to the foregoing the Universal Motors Corporation admitted during the hearing that in its
suit (C.C. No. 60201) against the PDP Transit, Inc. it was able to repossess all the units sold to the
latter, including the five (5) units guaranteed by the subject real estate mortgage, and to foreclose all
the chattel mortgages constituted thereon, resulting in the sale of the trucks at public auction.

With the foregoing background, the spouses Lorenzo Pascual and Leonila Torres, the real estate
mortgagors, filed an action in the Court of First Instance of Quezon City (Civil Case No. 8189) for the
cancellation of the mortgage they constituted on two (2) parcels of land1 in favor of the Universal
Motors Corporation to guarantee the obligation of PDP Transit, Inc. to the extent of P50,000. The
court rendered judgment for the plaintiffs, ordered the cancellation of the mortgage, and directed the
defendant Universal Motors Corporation to pay attorney's fees to the plaintiffs in the sum of P500.00.
Unsatisfied with the decision, defendant interposed the present appeal.

In rendering judgment for the plaintiffs the lower court said in part: "... there does not seem to be any
doubt that Art. 14842 of the New Civil Code may be applied in relation to a chattel mortgage
constituted upon personal property on the installment basis (as in the present case) precluding the
mortgagee to maintain any further action against the debtor for the purpose of recovering whatever
balance of the debt secured, and even adding that any agreement to the contrary shall be null and
void."

The appellant now disputes the applicability of Article 1484 of the Civil Code to the case at bar on
the ground that there is no evidence on record that the purchase by PDP Transit, Inc. of the five (5)
trucks, the payment of the price of which was partly guaranteed by the real estate mortgage in
question, was payable in installments and that the purchaser had failed to pay two or more
installments. The appellant also contends that in any event what article 1484 prohibits is for the
vendor to recover from the purchaser the unpaid balance of the price after he has foreclosed the
chattel mortgage on the thing sold, but not a recourse against the security put up by a third party.

Both arguments are without merit. The first involves an issue of fact: whether or not the sale was one
on installments; and on this issue the lower court found that it was, and that there was failure to pay
two or more installments. This finding is not subject to review by this Court. The appellant's bare
allegation to the contrary cannot be considered at this stage of the case.

The next contention is that what article 1484 withholds from the vendor is the right to recover any
deficiency from the purchaser after the foreclosure of the chattel mortgage and not a recourse to the
additional security put up by a third party to guarantee the purchaser's performance of his obligation.
A similar argument has been answered by this Court in this wise: "(T)o sustain appellant's argument
is to overlook the fact that if the guarantor should be compelled to pay the balance of the purchase
price, the guarantor will in turn be entitled to recover what she has paid from the debtor vendee (Art.
2066, Civil Code); so that ultimately, it will be the vendee who will be made to bear the payment of
the balance of the price, despite the earlier foreclosure of the chattel mortgage given by him. Thus,
the protection given by Article 1484 would be indirectly subverted, and public policy overturned."
(Cruz vs. Filipinas Investment & Finance Corporation, L-24772, May 27, 1968; 23 SCRA 791).

The decision appealed from is affirmed, with costs against the defendant-appellant.

FILINVEST CREDIT CORPORATION vs CA 178 SCRA 188, G.R. No. 82508 September 29, 1989

FACTS:

Herein private respondents spouses Jose Sy Bang and Iluminada Tan were engaged in the sale of gravel
produced from crushed rocks and used for construction purposes. They intended to buy rock crusher
from Rizal Consolidated Corporation which carried a cash price tag of P550,000.00. They applied for
financial assistance from herein petitioner Filinvest Credit Corporation, who agreed to extend financial
aid on the certain conditions.

A contract of lease of machinery (with option to purchase) was entered into by the parties whereby the
private respondents agreed to lease from the petitioner the rock crusher for two years starting from July
5, 1981, payable as follows: P10,000.00 – first 3 months, P23,000.00 – next 6 months, P24,800.00 – next
15 months. It was likewise stipulated that at the end of the two-year period, the machine would be
owned by the private respondents. Thus the private respondent issued in favor of the petitioner a check
for P150,550.00, as initial rental (or guaranty deposit), and 24 postdated checks corresponding to the 24
monthly rentals. In addition, to guarantee their compliance with the lease contract, the private
respondent executed a real estate mortgage over two parcels of land in favor of the petitioner. The rock
crusher was delivered to the spouses.
However, 3 months later, the souses stopped payment when petitioner had not acted on the complaints
of the spouses about the machine. As a consequence, petitioner extra-judicially foreclosed the real
estate mortgage. The spouses filed a complaint before the RTC. The RTC rendered a decision in favor of
private respondent. The petitioner elevated the case to CA which affirmed the decision in toto. Hence,
this petition.

ISSUES:

1. Whether or not the nature of the contract is one of a contract of sale.

2. Whether or not the remedies of the seller provided for in Article 1484 are cumulative.

HELD:

1. Yes. The intent of the parties to the subject contract is for the so-called rentals to be the installment
payments. Upon the completion of the payments, then the rock crusher, subject matter of the contract,
would become the property of the private respondents. This form of agreement has been criticized as a
lease only in name.

Sellers desirous of making conditional sales of their goods, but who do not wish openly to make a
bargain in that form, for one reason or another, have frequently restored to the device of making
contracts in the form of leases either with options to the buyer to purchase for a small consideration at
the end of term, provided the so-called rent has been duly paid, or with stipulations that if the rent
throughout the term is paid, title shall thereupon vest in the lessee. It is obvious that such transactions
are leases only in name. The so-called rent must necessarily be regarded as payment of the price in
installments since the due payment of the agreed amount results, by the terms of bargain, in the
transfer of title to the lessee.

2. No, it is alternative. The seller of movable in installments, in case the buyer fails to pay 2 or more
installments, may elect to pursue either of the following remedies: (1) exact fulfillment by the purchaser
of the obligation; (2) cancel the sale; or (3) foreclose the mortgage on the purchased property if one was
constituted thereon. It is now settled that the said remedies are alternative and not cumulative, and
therefore, the exercise of one bars the exercise of the others. Indubitably, the device – contract of lease
with option to buy – is at times resorted to as a means to circumvent Article 1484, particularly
paragraph (3) thereof. Through the set-up, the vendor, by retaining ownership over the property in the
guise of being the lessor, retains, likewise the right to repossess the same, without going through the
process of foreclosure, in the event the vendee-lessee defaults in the payment of the installments.
There arises therefore no need to constitute a chattel mortgage over the movable sold. More important,
the vendor, after repossessing the property and, in effect, canceling the contract of sale, gets to keep all
the installments-cum-rentals already.

FILINVEST CREDIT CORPORATION vs. COURT OF APPEALS

G.R. No. 82508 September 29, 1989

Facts:

Spouses Sy Bang were engaged in the sale of gravel produced from crushed rocks and used for
construction purposes. In order to increase their production, they looked for a rock crusher which Rizal
Consolidated Corporation then had for sale. A brother of Sy Bang, went to inspect the machine at the
Rizal Consolidated’s plant site. Apparently satisfied with the machine, the private respondents signified
their intent to purchase the same.

Since he does not have the financing capability, Sy Bang applied for financial assistance from Filinvest
Credit Corporation. Filinvest agreed to extend financial aid on the following conditions: (1) that the
machinery be purchased in the petitioner’s name; (2) that it be leased with option to purchase upon the
termination of the lease period; and (3) that Sy Bang execute a real estate mortgage as security for the
amount advanced by Filinvest. A contract of lease of machinery (with option to purchase) was entered
into by the parties whereby they to lease from the petitioner the rock crusher for two years. The contract
likewise stipulated that at the end of the two-year period, the machine would be owned by Sy Bang.

3 months from the date of delivery, Sy Bang claiming that they had only tested the machine that month,
sent a letter-complaint to the petitioner, alleging that contrary to the 20 to 40 tons per hour capacity of the
machine as stated in the lease contract, the machine could only process 5 tons of rocks and stones per
hour. They then demanded that the petitioner make good the stipulation in the lease contract. Sy Bang
stopped payment on the remaining checks they had issued to the petitioner.

As a consequence of the non-payment, Filinvest extrajudicially foreclosed the real estate mortgage.

Issue:

WON the real transaction was lease or sale? SALE ON INSTALLMENTS.

Held:

The real intention of the parties should prevail. The nomenclature of the agreement cannot change its
true essence, i.e., a sale on installments. It is basic that a contract is what the law defines it and the
parties intend it to be, not what it is called by the parties. It is apparent here that the intent of the parties to
the subject contract is for the so-called rentals to be the installment payments. Upon the completion of the
payments, then the rock crusher, subject matter of the contract, would become the property of the private
respondents. This form of agreement has been criticized as a lease only in name.

Sellers desirous of making conditional sales of their goods, but who do not wish openly to make a bargain
in that form, for one reason or another, have frequently resorted to the device of making contracts in the
form of leases either with options to the buyer to purchase for a small consideration at the end of term,
provided the so-called rent has been duly paid, or with stipulations that if the rent throughout the term is
paid, title shall thereupon vest in the lessee. It is obvious that such transactions are leases only in name.
The so-called rent must necessarily be regarded as payment of the price in installments since the due
payment of the agreed amount results, by the terms of bargain, in the transfer of title to the lessee.

Indubitably, the device contract of lease with option to buy is at times resorted to as a means to
circumvent Article 1484, particularly paragraph (3) thereof.Through the set-up, the vendor, by retaining
ownership over the property in the guise of being the lessor, retains, likewise, the right to repossess the
same, without going through the process of foreclosure, in the event the vendee-lessee defaults in the
payment of the installments. There arises therefore no need to constitute a chattel mortgage over the
movable sold. More important, the vendor, after repossessing the property and, in effect, canceling the
contract of sale, gets to keep all the installments-cum-rentals already paid.

Even if there was a contract of sale, Filinvest is still not liable because Sy Bang is presumed to be more
knowledgeable, if not experts, on the machinery subject of the contract, they should not therefore be
heard now to complain of any alleged deficiency of the said machinery. It was Sy Bang who was
negligent, not Filinvest. Further, Sy Bang is precluded to complain because he signed a Waiver of
Warranty.

Luis Ridad and Lourdes Ridad, plaintiffs-appellees, v

Filipinas Investment and Finance Corporation, Jose D. Sebastian and Jose San Agustin, in his
capacity as Sheriff, defendants-appellants

 Plaintiffs purchased from Supreme Sales and Development Corporation (Supreme) 2 brand new Ford
Consul Sedans, for P26,887 payable in 24 monthly installments.
 To secure payment thereof, plaintiffs executed a promissory note covering the purchase price and a deed
of chattel mortgage on the two vehicles purchased and also on another car (Chevrolet) and plaintiff’s
franchise or certificate of public convenience granted by the defunct Public Service Commission for the
operation of a taxi fleet.
 With the conformity of plaintiffs, the vendor Supreme assigned its rights, title and interest to the
promissory note and chattel mortgage to the defendant Filipinas Investment and Finance Corporation.
 Plaintiffs failed to pay their monthly installments. Filipinas foreclosed the chattel mortgage extra-
judicially.
 During the public auction, of which the plaintiffs were not notified, the 2 Ford Consul cars were bought
by defendant Filipinas, who was as the highest bidder. During another public auction, the rest of the
properties (including the taxi franchise) subject of the chattel mortgage were sold, and bought by
defendant Filipinas also.
 Filipinas subsequently sold the taxi franchise to defendant Jose D. Sebastian, who filed with the Public
Service Commission an application for approval of said sale.
 Plaintiffs then filed an action for annulment of contract before the CFI, against Filipinas, Sebastian, and
Sheriff San Agustin.
 CFI ruling: The chattel mortgage was null and void in so far as the taxi franchise and the used Chevrolet
car were concerned, and the sale at public auction of the taxicab franchise was to be of no legal effect.
The Certificate of Sale issued by the Sheriff of Manila in favor of Filipinas concerning the taxi franchise
 was cancelled and set aside. The assignment made by Filipinas in favor of Jose Sebastian was also
declared void and of no legal effect.
 The CA certified the defendants’ appeal to the SC.

Issue: Is the chattel mortgage and its subsequent sale valid? NO

Ratio:

8) Article 1484 of the Civil Code is applicable. Under this article, the vendor of personal property the
purchase price of which is payable in installments, has the right, should the vendee default in the
payment of two or more of the agreed installments, to exact fulfillment by the purchaser of the
obligation, or to cancel the sale, or to foreclose the mortgage on the purchased personal property, if one
was constituted. The vendor can only choose one option.
9) If the vendor avails himself of the right to foreclose the mortgage, the law prohibits him from further
bringing an action against the vendee for the purpose of recovering whatever balance of the debt
secured is not satisfied by the foreclosure sale.
10) Purpose of the law is to prevent mortgagees from seizing the mortgaged property, buying it at
foreclosure sale for a low price and the bringing suit against the mortgagor for a deficiency judgment.
a. Without the law, the mortgagor-buyer would find himself without the property and still owing
practically the full amount of his original debt.
11) In this case, defendant Filipinas chose to foreclose the mortgage upon default of plaintiffs, and bought
the vehicles at the public auction as the highest bidder.
a. Filipinas is deemed to have renounced any and all rights which it might otherwise have under the
promissory note and the chattel mortgage as well as the payment of the unpaid balance.
12) The lower court rightly declared the nullity of the chattel mortgage in so far as the taxi franchise and the
Chevrolet were concerned, under the authority of the ruling in the case of Levy Hermanos, Inc. v Pacific
Commercial Co., et al.
13) The vendor’s right to foreclose is limited only on the thing sold.
14) The vendor of personal property sold on installment is precluded, after foreclosing the chattel mortgage
on the thing sold, from having a recourse against the additional security put up by a third party to
guarantee the purchaser’s performance of his obligation. (Cruz v Filipinos Investment & Finance Corporation)
a. Otherwise, if the vendee could still be compelled to pay the balance of the purchase price, the
vendee will be made to bear the payment of the balance despite the earlier foreclosure.
Judgment appealed from is affirmed.

RIDAD V FILIPINAS

Facts: The spouses Ridad purchased from the Supreme Sales Development Corporation
two (2) brand new Ford Consul Sedans complete with accessories. To secure payment
thereof, plaintiffs executed on the same date a promissory note covering the purchase price
and a deed of chattel mortgage not only on the two vehicles purchased but also on another
car (Chevrolet) and their franchise or certificate of public convenience granted by the
defunct Public Service Commission for the operation of a taxi fleet with Filipinas Investment.

Due to the failure of the plaintiffs to pay their monthly installments as per promissory note,
Filipinas Investment foreclosed on the chattel mortgage on the Ford Consul Sedans. The
foreclosure sale had a deficiency. Consequently, the corporation foreclosed the mortgage
constituted on the (Chevrolet) and their franchise or certificate of public convenience.

Issue: Whether Filipinas Investment is precluded from foreclosing the second mortgage to
recover the deficiency on the first mortgage

Held: No. The vendor of personal property sold on the installment basis is precluded, after
foreclosing the chattel mortgage on the thing sold from having a recourse against the
additional security put up by a third party to guarantee the purchaser’s performance of his
obligation on the theory that to sustain the same would overlook the fact that if the
guarantor should be compelled to pay the balance of the purchase price, said guarantor will
in turn be entitled to recover what he has paid from the debtor-vendee, and ultimately it will
be the latter who will be made to bear the payment of the of the balance of the price,
despite the earlier foreclosure of the chattel mortgage given by him, thereby indirectly
subverting the protection given the latter.

If the vendor under such circumstance is prohibited from having a recourse against the
additional security for reasons therein stated, there is no ground why such vendor should
not likewise be precluded from further extrajudicially foreclosing the additional security put
up by the vendees themselves, as in the instant case, it being tantamount to a further action
5 that would violate Article 1484 of the Civil Code, for then is actually no between an
additional security put up by the vendee himself and such security put up by a third party
insofar as how the burden would ultimately fall on the vendee himself is concerned.

Luis Ribad vs Filipinas Investment and Finance Corp

Facts:

On April 14, 1964, plaintiffs purchased from the Supreme Sales arid Development Corporation two (2)
brand new Ford Consul Sedans complete with accessories, for P26,887 payable in 24 monthly
installments. To secure payment thereof, plaintiffs executed on the same date a promissory note covering
the purchase price and a deed of chattel mortgage not only on the two vehicles purchased but also on
another car (Chevrolet) and plaintiffs' franchise or certificate of public convenience granted by the defunct
Public Service Commission for the operation of a taxi fleet. Then, with the conformity of the plaintiffs, the
vendor assigned its rights, title and interest to the above-mentioned promissory note and chattel
mortgage to defendant Filipinas Investment and Finance Corporation.

Due to the failure of the plaintiffs to pay their monthly installments as per promissory note, the defendant
corporation foreclosed the chattel mortgage extra-judicially, and at the public auction sale of the two Ford
Consul cars, of which the plaintiffs were not notified, the defendant corporation was the highest bidder
and purchaser. Another auction sale was held on November 16, 1965, involving the remaining properties
subject of the deed of chattel mortgage since plaintiffs' obligation was not fully satisfied by the sale of the
aforesaid vehicles, and at the public auction sale, the franchise of plaintiffs to operate five units of taxicab
service was sold for P8,000 to the highest bidder, herein defendant corporation, which subsequently sold
and conveyed the same to herein defendant Jose D. Sebastian, who then filed with the Public Service
Commission an application for approval of said sale in his favor.

On February 21, 1966, plaintiffs filed an action for annulment of contract before the Court of First Instance
of Rizal, Branch I, with Filipinas Investment and Finance Corporation, Jose D. Sebastian and Sheriff Jose
San Agustin, as party-defendants. By agreement of the parties, the case was submitted for decision in the
lower court on the basis of the documentary evidence adduced by the parties during the pre-trial
conference. Thereafter, the lower court declared the chattel mortgage to be null and void in so far as the
taxicab franchise and the used Chevrolet car of plaintiffs are concerned, and the sale at public auction
conducted by the City Sheriff of Manila concerning said taxicab franchise, to be of no legal effect.
Issue:The validity of the chattel mortgage in so far as the franchise and the subsequent sale thereof are
concerned.

Ruling:
The resolution of said issue is unquestionably governed by the provisions of Article 1484 of the Civil
Code.

The precise purpose of the law is to prevent mortgagees from seizing the mortgaged property, buying it at
foreclosure sale for a low price and then bringing suit against the mortgagor for a deficiency judgment,
otherwise, the mortgagor-buyer would find himself without the property and still owing practically the full
amount of his original indebtedness.

The lower court rightly declared the nullity of the chattel mortgage in question in so far as the taxicab
franchise and the used Chevrolet car of plaintiffs are concerned, under the authority of the ruling in the
case of Levy Hermanos, Inc. vs. Pacific Commercial Co., et al., 71 Phil. 587, the facts of which are similar
to those in the case at bar. There, we have the same situation wherein the vendees offered as security for
the payment of the purchase price not only the motor vehicles which were bought on installment, but also
a residential lot and a house of strong materials. This Court sustained the pronouncement made by the
lower court on the nullity of the mortgage in so far as it included the house and lot of the vendees, holding
that under the law, should the vendor choose to foreclose the mortgage, he has to content himself with
the proceeds of the sale at the public auction of the chattels which were sold on installment and
mortgaged to him and having chosen the remedy of foreclosure, he cannot nor should he be allowed to
insist on the sale of the house and lot of the vendees, for to do so would be equivalent to obtaining a writ
of execution against them concerning other properties which are separate and distinct from those which
were sold on installment. This would indeed be contrary to public policy and the very spirit and purpose of
the law, limiting the vendor's right to foreclose the chattel mortgage only on the thing sold.

De La Cruz v Asian Consumer (CHECK FULLTEXT)

Doctrine: In this jurisdiction, the three (3) remedies provided for in the "Recto Law" are alternative and not
cumulative; the exercise of one would preclude the other remedies. Consequently, should the vendee-mortgagor
default in the payment of two or more of the agreed installments, the vendor-mortgagee has the option to avail of
any of these three (3) remedies: either to exact fulfillment of the obligation, to cancel the sale, or to foreclose the
mortgage on the purchased chattel, if one was constituted.
Facts:

Spouses Romulo de la Cruz and Delia de la Cruz, and one Daniel Fajardo, petitioners, purchased on installment
basis one (1) truck from Benter Motor Sales Corporation (BENTER for brevity). To secure payment, they executed
in favor of BENTER a chattel mortgage over the vehicle 1 and a promissory note payable in thirty (30) monthly
installments of P9,412.00. On the same date, BENTER assigned its rights and interest over the vehicle in favor of
private respondent Asian Consumer and Industrial Finance Corporation (ASIAN for brevity).

Pets defaulted on more than two (2) installments. Thereafter, notwithstanding the demand letter of ASIAN,
petitioners failed to settle their obligation.

By virtue of a petition for extrajudicial foreclosure of chattel mortgage, the sheriff attempted to repossess the
vehicle but was unsuccessful because of the refusal of the son of petitioner, Rolando de la Cruz to surrender the
same. Hence, the return of the sheriff that the service was not satisfied.

Romulo de la Cruz brought the vehicle to the office of ASIAN and left it there where it was inventoried and
inspected.

ASIAN filed an ordinary action with the court a quo for collection of the balance of P196,152.99 of the purchase
price, plus liquidated damages and attorney's fees.

TC: pro- ASIAN

CA: Affirmed TC

". . . no extrajudicial foreclosure of chattel mortgage ever transpired in the case at bar. Undoubtedly, plaintiff had
first chosen to extrajudically foreclose the mortgage, but this did not materialize through no fault of plaintiff, as
defendant refused to surrender the Hino truck.”

"Though the remedy of foreclosure was first chosen, this remedy however proved ineffectual due to no fault of
plaintiff. Therefore, plaintiff may exercise other remedies such as exact fulfillment of the obligation and thereafter
recover the deficiency. This is the essence of the rule of alternative remedies under Article 1484."

Petitioners take exception. While they do not dispute that where the mortgagee elects the remedy of foreclosure
which, according to them, includes the option to sell in a public or private sale, commences and pursues it, and in
consideration of which he also performs everything that is incumbent upon him to do to implement the
foreclosure they nevertheless insist that he should not later be allowed to change course midway in the process,
abandon the foreclosure and shift to other remedies such as collection of the balance, especially after having
recovered the mortgaged chattel from them and while retaining possession thereof.

Issue: Whether or not a chattel mortgagee, after opting to foreclose the mortgage but failing afterwards to sell
the property at public auction, may still sue to recover the unpaid balance of the purchase price.

Held: Yes.

It is not disputed that the instant case is covered by the so-called "Recto Law", now Art. 1484 of the New Civil
Code, which provides:

"In a contract of sale of personal property the price of which is payable in installments, the vendor may exercise
any of the following remedies: (1) Exact fulfillment of the obligation, should the vendee fail to pay; (2) Cancel the
sale, should the vendee's failure to pay cover two or more installments; (3) Foreclose the chattel mortgage on the
thing sold, if one has been constituted, should the vendee's failure to pay cover two or more installments. In this
case, he shall have no further action against the purchaser to recover any unpaid balance of the price. Any
agreement to the contrary shall be void."

In this jurisdiction, the three (3) remedies provided for in the "Recto Law" are alternative and not cumulative; the
exercise of one would preclude the other remedies. Consequently, should the vendee-mortgagor default in the
payment of two or more of the agreed installments, the vendor-mortgagee has the option to avail of any of these
three (3) remedies: either to exact fulfillment of the obligation, to cancel the sale, or to foreclose the mortgage on
the purchased chattel, if one was constituted.

The records show that ASIAN initiated a petition for extrajudicial foreclosure of the chattel mortgage. But the
sheriff failed to recover the motor vehicle. It was not until 10 October 1984, or almost a month later that
petitioners delivered the unit to ASIAN. The action to recover the balance of the purchase price was instituted

It is thus clear that while ASIAN eventually succeeded in taking possession of the mortgaged vehicle, it did not
pursue the foreclosure of the mortgage as shown by the fact that no auction sale of the vehicle was ever
conducted.

In the case before Us, there being no actual foreclosure of the mortgaged property, ASIAN is correct in resorting to
an ordinary action for collection of the unpaid balance of the purchase price.
Agustin v. Court of Appeals

The dispute stemmed from an unpaid promissory note dated October 28, 1970, executed by
petitioner Leovillo C. Agustin in favor of ERM Commercial for the amount of P43,480.80. The note
was payable in monthly installments3and secured by a chattel mortgage over an Isuzu diesel
truck,4 both of which were subsequently assigned to private respondent Filinvest Finance
Corporation.5 When petitioner defaulted in paying the installments, private respondent demanded
from him the payment of the entire balance or, in lieu thereof, the possession of the mortgaged
vehicle. Neither payment nor surrender was made. Aggrieved, private respondent filed a complaint
with the Regional Trial. Court of Manila, Branch 26 (RTC Branch 26) against petitioner praying for
the issuance of a writ of replevin or, in the alternative, for the. payment of P32,723.97 plus interest at
the rate of 14% per annum from due date until fully paid.6 Trial ensued and, thereafter, a writ of
replevin was issued by RTC Branch 26. By virtue thereof, private respondent acquired possession of
the vehicle. Upon repossession, the latter discovered that the vehicle was no longer in running
condition and that several parts were missing which private respondent replaced. The vehicle was
then foreclosed and sold at public auction.

Private respondent subsequently filed a "supplemental complaint" claiming additional reimbursement

worth P8,852.76 as value of replacement parts7 and for expenses incurred in transporting the
mortgaged vehicle from Cagayan to Manila. In response, petitioner moved to dismiss the
supplemental complaint arguing that RTC Branch 26 had already lost jurisdiction over the case
because of the earlier extra-jurisdicial foreclosure of the mortgage. The lower court granted the
motion and the case was dismissed. Private respondent elevated the matter to the appellate court,
docketed as CA-G.R. No. 56718-R, which set aside the order of dismissal and ruled that
repossession expenses incurred by private respondent should be reimbursed.9 This decision
became final and executory, hence the case was accordingly remanded to the Regional Trial Court
of Manila, Branch 40 (RTC Branch 40) for reception of evidence to determine the amount due from
petitioner. 10 After trial, RTC Branch 40 found petitioner liable for the repossession expenses,
attorney's fees, liquidated damages, bonding fees and other expenses in the seizure of the vehicle in
the aggregate sum of P18,547.38. Petitioner moved for reconsideration. Acting thereon, RTC Branch
40 modified its decision by lowering the monetary award to P8,852.76, the amount originally prayed
for in the supplemental complaint. 11 Private respondent appealed the case with. respect to the
reduction of the amount awarded. Petitioner, likewise, appealed impugning the trial court's order for
him to pay private respondent P8,852.76, an amount over and above the value received from the
foreclosure sale. Both appeals were consolidated and in CA-G.R. No. 24684, the modified order of
RTC Branch 40 was affirmed. Petitioner filed a motion for reconsideration, but to no avail. 12 Hence,
this petition for review on certiorari.

Petitioner contends that. the award of repossession expenses to private respondent as mortgagee is
"contrary to the letter, intent and spirit of Article 1484 13 of the Civil Code". 14 He asserts that private
respondent's repossession expenses have been amply covered by the foreclosure of the chattel
mortgage, hence he could no longer be held liable. The arguments are devoid of merit.

Petitioner's contentions, we note, were previously rejected by respondent court in its decision in CA-
G.R No. 56718-R the dispositive portion of which provides as follows:

WHEREFORE, the order dismissing the case is hereby set aside and the case is
remanded to the lower court for reception of evidence of 'expenses properly incurred
in effecting seizure of the chattel (and) of recoverable attorney's fees in prosecuting
the action for replevin" as "repossession expenses" prayed for in the supplemental
complaint, without pronouncement as to costs. 15

which ruling has long acquired finality. It is clear, therefore, that the appellate court had
already settled the propriety of awarding repossession expenses in favor of private
respondent. The remand of the case to RTC Branch 40 was for the sole purpose of threshing
out the correct amount of expenses and not for relitigating the accuracy of the award. Thus,
the findings of RTC Branch 40, as affirmed by the appellate court in CA-G.R. No. 24684,
were confined to the appreciation of evidence relative to the repossession expenses for the
query or issue passed upon by the respondent court in CA-G.R. No. 56718-R (propriety of
the award for repossession expenses) has become the "law of the case". This principle is
defined as "a term applied to an established rule that when an appellate court passes on a
question and remands the cause to the lower court for further proceedings, the question
there settled becomes the law of the case upon subsequent appeal." 16Having exactly the
same parties and issues, the decision in the former appeal (CA-G.R. No. 56718-R) is now
the established and controlling rule. Petitioner may not therefore be allowed in a subsequent
appeal (CA-G.R. No. 24684) and in this petition to resuscitate and revive formerly settled
issues. Judgment of courts should attain finality at some point in time, as in this case,
otherwise, there will be no end to litigation.
 At any rate, even if we were to brush aside the "law of the case" doctrine we find the award
for repossession expenses still proper. In Filipinas Investment & Finance Corporation
v. Ridad, 17 the Court recognized an exception to the rule stated under Art. 1484(3) upon
which petitioner relies. Thus:

. . . Where the mortgagor plainly refuses to deliver the chattel subject of the
mortgage upon his failure to pay two or more installments, or if he conceals the
chattel to place it beyond the reach of the mortgagee, what then is the mortgagee
expected to do? . . . It logically follows as a matter of common sense, that the
necessary expenses incurred in the prosecution by the mortgagee of the action for
replevin so that he can regain possession of the chattel, should be borne by the
mortgagor. Recoverable expenses would, in our view, include expenses properly
incurred in effecting seizure of the chattel and reasonable attorney's fees in
prosecuting the action for replevin. 18

Anent the denial of the award for attorney's fees, we find the same in order. The trial court,
as well as respondent court, found no evidence to support the claim for; attorney's fees
which factual finding is binding on us. 19 We find no compelling reason, and none was
presented, to set aside this ruling.

ACCORDINGLY, the petition is DENIED for lack of merit, and the decision of the Court of
Appeals is hereby AFFIRMED in toto.

SO ORDERED.

Agustin v. Court of Appeals

Facts: Leovillo C. Agustin executed a promissory note in favor of ERM Commercial for the
amount ofP43,480.80 (ERM). The note was payable in monthly installments and secured
by a chattel mortgage over an Isuzu diesel truck, both of which were subsequently assigned
to private respondent Filinvest Finance Corporation. When petitioner defaulted in paying the
installments, private respondent demanded from him the payment of the entire balance or,
in lieuthereof, the possession of the mortgaged vehicle. Neither payment nor surrender was
made.

Aggrieved, private respondent filed a complaint with the Regional Trial Court of Manila,
Branch 26 (RTC Branch 26) against petitioner praying for the issuance of a writ of replevin o
Trial ensued and, thereafter, a writ of replevin was issued by RTC Branch 26. By virtue
thereof, private respondent acquired possession of the vehicle. Upon repossession, the
latter discovered that the vehicle was no longer in running condition and that several parts
were missing which private respondent replaced. The vehicle was then foreclosed and sold
at public auction. Petitioner contends that the award of repossession expenses to private
respondent as mortgagee is “contrary to the letter, intent and spirit of Article 1484 of the
Civil Code”. He asserts that private respondent’s repossession expenses have been amply
covered by the foreclosure of the chattel mortgage, hence he could no longer be held liable.

Issue: Whether or not mortgagor is liable to pay expenses as a result of the enforcement of
the foreclosure.

Held: Where the mortgagor plainly refuses to deliver the chattel subject of the mortgage
upon his failure to pay two or more installments, or if he conceals the chattel to place it
beyond the reach of the mortgagee, he may be held liable to pay expenses as a result of
the enforcement of the foreclosure. It logically follows as a matter of common sense, that
the necessary expenses incurred in the prosecution by the mortgagee of the action for
replevin so that he can regain possession of the chattel, should be borne by the mortgagor.
Recoverable expenses would, in our view, include expenses properly incurred in effecting
seizure of the chattel and reasonable attorney’s fees in prosecuting the action for replevin.

Fiestan vs. Court of Appeals, and Developmentt Bank of the Philippines

185 SCRA 751
May 1990

FACTS:

For failure of petitioner spouses Dionisio Fiestan and Juanita Arconada (spouses Fiestan) to pay their
mortgage indebtedness to respondent Development Bank of the Philippines (DBP), the latter was able
to acquire at a public auction sale on August 6, 1979 the parcel of land (Lot No. 2-B covered by TCT No.
T-13218) that the spouses Fiestan owned in Ilocos Sur after extrajudicial foreclosure of said property.
The Provincial Sheriff issued a certificate of sale that same day which was registered on September 28
in the Office of the Register of Deeds of Ilocos Sur. Earlier, or on September 26, spouses Fiestan also
executed a Deed of Sale in favor of DBP which was likewise registered on September 28, 1979. When
spouses Fiestan failed to redeem their parcel of land within the 1 year period which expired on
September 28, 1980, the Register of Deeds cancelled their title over the subject property and issued
TCT No. T-19077 to DBP upon the latter’s duly executed affidavit of consolidation of ownership.

On April 13, 1982, the DBP sold the lot to Francisco Peria, so the Register of Deeds of Ilocos Sur
cancelled DBP’s title over said property and issued TCT No. T-19229 to Peria’s name, who later secured
a tax declaration for said lot and accordingly paid the taxes due thereon. He thereafter mortgaged said
lot to the PNB-Vigan Branch as security for his loan of P115,000.00. Since the spouses Fiestan were still
in possession of the property, the Provincial Sheriff ordered them to vacate the premises, but instead
of leaving, they filed a complaint in the RTC of Vigan, Ilocos Sur for annulment of sale, mortgage and
cancellation of transfer certificates of title against the DBP-Laoag City, PNB-Vigan Branch, Ilocos Sur,
Francisco Peria and the Register of Deeds of Ilocos Sur.

The lower court dismissed said complaint, declaring valid the extrajudicial foreclosure sale of the
mortgaged property in favor of the DBP and its subsequent sale to Francisco Peria as well as the real
estate mortgage constituted in favor of PNB-Vigan. The Court of Appeals likewise affirmed said
decision. The spouses Fiestan herein seek to annul the extrajudicial foreclosure sale of the mortgaged
property on the ground that the Provincial Sheriff conducted the foreclosure without first effecting a
levy on said property before selling the same at the public auction sale.

ISSUE:

Who has the right to acquire by purchase the subject property?

COURT RULING:

In denying the petition, the Supreme Court reiterated that the formalities of a levy, which the
Provincial Sheriff of Ilocos Sur allegedly failed to comply with, are not basic requirements before an
extrajudicially foreclosed property can be sold at public auction. The spouses Fiestan insisted that
what prevails over the case are par. (2) of Article 1491 and par. (7) of Article 1409 of the Civil Code
which prohibits agents from acquiring by purchase, even at a public or judicial auction either in person
or through the mediation of another, the property whose administration or sale may have been
entrusted to them unless the consent of the principal has been given. However, the Supreme Court
ruled that the power to foreclose is not an ordinary agency that contemplates exclusively the
representation of the principal by the agent but is primarily an authority conferred upon the mortgagee
for the latter's own protection, as provided under Section 5 of Act No 3135, as amended, which is a
special law that must prevail over the Civil Code which is a general law. Even in the absence of
statutory provision, there is authority to hold that a mortgagee, and in this case the DBP, may purchase
at a sale under his mortgage to protect his own interest or to avoid a loss to himself by a sale to a third
person at a price below the mortgage debt.

Southern Motors vs. Moscoso

Facts:

Southern Motors sold to Moscoso one Chevrolet truck on installment basis. Upon making a
downpayment, Moscoso executed a promissory note representing the unpaid balance of the purchase
price. To secure payment, a chattel mortgage was constituted on the truck in favor of Southern
Motors. Moscoso failed to pay 3 installments. Subsequently, Southern Motors filed a complaint
against him to recover the unpaid balance of the promissory note. A writ of attachment was issued.
The Chevrolet truck and a house and lot belonging to Moscoso were attached by the sheriff. After
attachment but before the trial of the case, the Prov Sheriff sold the truck at a public auction,
Southern Motors being the only bidder, purchased the same. Trial court then rendered a decision
against Moscoso.

Arguments:
S. Motors: claims that in filing the complaint, demanding payment of the unpaid balance of the
purchase price, it has availed of the first remedy provided in said article i.e. to exact fulfillment of the
obligation (specific performance)

Moscoso: contends that appellee had availed itself of the third remedy viz, the foreclosure of the
chattel mortgage on the truck. He submits that the matter should be looked at, not by the allegations
in the complaint, but by the very effect and result of the procedural steps taken and that appellee tried
to camouflage its acts by filing a complaint purportedly to exact the fulfillment of an obligation
petition, in an attempt to circumvent the provisions of Article 1484 of the new Civil Code. He
concludes that under his theory, a deficiency judgment would be without legal basis.

Issue:

What did S. Motors availed of under Art. 1484 of the Civil Code, the first remedy (Exact fulfillment
of the obligation) or the third (Foreclose the chattel mortgage on the thing sold, if one has been
constituted, should the vendee’s failure to pay cover two or more installments. In this case, he shall
have no further action against the purchaser to recover any unpaid balance of the price. Any
agreement to the contrary shall be void.)?

Held:

Manifestly, the appellee had chosen the first remedy. The complaint is an ordinary civil action for
recovery of the remaining unpaid balance due on the promissory note. The plaintiff had not adopted
the procedure or methods outlined by Sec. 14 of the Chattel Mortgage Law but those prescribed for
ordinary civil actions, under the Rules of Court. Had appellee elected the foreclosure, it would not
have instituted this case in court; it would not have caused the chattel to be attached under Rule 59,
and had it sold at public auction, in the manner prescribed by Rule 39. That the herein appellee did
not intend to foreclose the mortgage truck, is further evinced by the fact that it had also attached the
house and lot of the appellant at San Jose, Antique.

The court perceived nothing unlawful or irregular in appellee’s act of attaching the mortgaged truck
itself. Since herein appellee has chosen to exact the fulfillment of the appellant’s obligation, it may
enforce execution of the judgment that may be favorably rendered hereon, on all personal and real
properties of the latter not exempt from execution sufficient to satisfy such judgment. It should be
noted that a house and lot at San Jose, Antique were also attached. No one can successfully contest
that the attachment was merely an incident to an ordinary civil action.

SOUTHERN MOTORS, INC. vs. MOSCOSO

2 SCRA 168G.R. No. L-14475, May 30, 1961

FACTS:
Plaintiff Southern Motors, Inc. sold to defendant Angel Moscoso one Chevrolet truck on
installment basis,for P6,445.00. Upon making a down payment, the defendant executed a
promissory note for the sum of P4,915.00, representing the unpaid balance of the purchase price
to secure the payment of which, achattel mortgage was constituted on the truck in favor of the
plaintiff. Of said account, the defendant hadpaid a total of P550.00, of which P110.00 was
applied to the interest and P400.00 to the principal, thusleaving an unpaid balance of P4,475.00.
The defendant failed to pay 3 installments on the balance of thepurchase price.Plaintiff filed a
complaint against the defendant, to recover the unpaid balance of the promissory note.Upon
plaintiff's petition, a writ of attachment was issued by the lower court on the properties of
thedefendant. Pursuant thereto, the said Chevrolet truck, and a house and lot belonging to
defendant, wereattached by the Sheriff and said truck was brought to the plaintiff's compound
for safe keeping. Afterattachment and before the trial of the case on the merits, acting upon the
plaintiff's motion for theimmediate sale of the mortgaged truck, the Provincial Sheriff of Iloilo
sold the truck at public auction inwhich plaintiff itself was the only bidder for P1,OOO.OO. The
trial court condemned the defendant to paythe plaintiff the amount of P4,475.00 with interest at
the rate of 12% per annum from August 16, 1957,until fully paid, plus 10% thereof as attorneys
fees and costs. Hence, this appeal by the defendant.

ISSUE:
Whether or not the attachment caused to be levied on the truck and its immediate sale at public
auction,was tantamount to the foreclosure of the chattel mortgage on said truck.
HELD:
No.Article 1484 of the Civil Code provides that in a contract of sale of personal property the
price of which ispayable in installments, the vendor may exercise any of the following remedies:
(I) Exact fulfillment of the obligation, should the vendee fail to pay; (2) Cancel the sale, should
the vendee's failure to pay covertwo or more installments; and (3) Foreclose the chattel
mortgage on the thing sold, if one has beenconstituted, should the vendee's failure to pay cover
two or more installments. In this case, he shall haveno further action against the purchaser to
recover any unpaid balance of the price. Any agreement to thecontrary shall be void.The
plaintiff had chosen the first remedy. The complaint is an ordinary civil action for recovery of
theremaining unpaid balance due on the promissory note. The plaintiff had not adopted the
procedure ormethods outlined by Sec. 14 of the Chattel Mortgage Law but those prescribed for
ordinary civil actions,under the Rules of Court. Had the plaintiff elected the foreclosure, it
would not have instituted this casein court; it would not have caused the chattel to be attached
under Rule 59, and had it sold at publicauction, in the manner prescribed by Rule 39. That the
plaintiff did not intend to foreclose the mortgagetruck, is further evinced by the fact that it had
also attached the house and lot of the appellant at SanJose, Antique.We perceive nothing
unlawful or irregular in plaintiff's act of attaching the mortgaged truck itself. Sincethe plaintiff
has chosen to exact the fulfillment of the appellant's obligation, it may enforce execution of the
judgment that may be favorably rendered hereon, on all personal and real properties of the
latter notexempt from execution sufficient to satisfy such judgment. It should be noted that a
house and lot at SanJose, Antique were also attached. No one can successfully contest that the
attachment was merely anincident to an ordinary civil action. The mortgage creditor may
recover judgment on the mortgage debtand cause an execution on the mortgaged property and
may cause an attachment to be issued andlevied on such property, upon beginning his civil
action.

LORENZO PASCUAL and LEONILA TORRES

vs.
UNIVERSAL MOTORS CORPORATION

1. That the plaintiffs executed the real estate mortgage subject matter of this
complaint on December 14, 1960 to secure the payment of the indebtedness of PDP
Transit, Inc. for the purchase of five (5) units of Mercedez Benz trucks under invoices
Nos. 2836, 2837, 2838, 2839 and 2840 with a total purchase price or principal
obligation of P152,506.50 but plaintiffs' guarantee is not to exceed P50,000.00 which
is the value of the mortgage.

2. That the principal obligation of P152,506.50 was to bear interest at 1% a month

from December 14, 1960.

3. That as of April 5, 1961 with reference to the two units mentioned above and as of
May 22, 1961 with reference to the three units, PDP Transit, Inc., plaintiffs' principal,
had paid to the defendant Universal Motors Corporation the sum of P92,964.91, thus
leaving a balance of P68,641.69 including interest due as of February 8, 1965.

4. That the aforementioned obligation guaranteed by the plaintiffs under the Real
Estate Mortgage, subject of this action, is further secured by separate deeds of
chattel mortgages on the Mercedez Benz units covered by the aforementioned
invoices in favor of the defendant Universal Motors Corporation.

5. That on March 19, 1965, the defendant Universal Motors Corporation filed a
complaint against PDP Transit, Inc. before, the Court of First Instance of Manila
docketed as Civil Case No. 60201 with a petition for a writ of Replevin, to collect the
balance due under the Chattel Mortgages and to repossess all the units to sold to
plaintiffs' principal PDP Transit, Inc. including the five (5) units guaranteed under the
subject Real (Estate) Mortgage.

In addition to the foregoing the Universal Motors Corporation admitted during the hearing that in its
suit (C.C. No. 60201) against the PDP Transit, Inc. it was able to repossess all the units sold to the
latter, including the five (5) units guaranteed by the subject real estate mortgage, and to foreclose all
the chattel mortgages constituted thereon, resulting in the sale of the trucks at public auction.

With the foregoing background, the spouses Lorenzo Pascual and Leonila Torres, the real estate
mortgagors, filed an action in the Court of First Instance of Quezon City (Civil Case No. 8189) for the
cancellation of the mortgage they constituted on two (2) parcels of land1 in favor of the Universal
Motors Corporation to guarantee the obligation of PDP Transit, Inc. to the extent of P50,000. The
court rendered judgment for the plaintiffs, ordered the cancellation of the mortgage, and directed the
defendant Universal Motors Corporation to pay attorney's fees to the plaintiffs in the sum of P500.00.
Unsatisfied with the decision, defendant interposed the present appeal.

In rendering judgment for the plaintiffs the lower court said in part: "... there does not seem to be any
doubt that Art. 14842 of the New Civil Code may be applied in relation to a chattel mortgage
constituted upon personal property on the installment basis (as in the present case) precluding the
mortgagee to maintain any further action against the debtor for the purpose of recovering whatever
balance of the debt secured, and even adding that any agreement to the contrary shall be null and
void."

The appellant now disputes the applicability of Article 1484 of the Civil Code to the case at bar on
the ground that there is no evidence on record that the purchase by PDP Transit, Inc. of the five (5)
trucks, the payment of the price of which was partly guaranteed by the real estate mortgage in
question, was payable in installments and that the purchaser had failed to pay two or more
installments. The appellant also contends that in any event what article 1484 prohibits is for the
vendor to recover from the purchaser the unpaid balance of the price after he has foreclosed the
chattel mortgage on the thing sold, but not a recourse against the security put up by a third party.

Both arguments are without merit. The first involves an issue of fact: whether or not the sale was one
on installments; and on this issue the lower court found that it was, and that there was failure to pay
two or more installments. This finding is not subject to review by this Court. The appellant's bare
allegation to the contrary cannot be considered at this stage of the case.

The next contention is that what article 1484 withholds from the vendor is the right to recover any
deficiency from the purchaser after the foreclosure of the chattel mortgage and not a recourse to the
additional security put up by a third party to guarantee the purchaser's performance of his obligation.
A similar argument has been answered by this Court in this wise: "(T)o sustain appellant's argument
is to overlook the fact that if the guarantor should be compelled to pay the balance of the purchase
price, the guarantor will in turn be entitled to recover what she has paid from the debtor vendee (Art.
2066, Civil Code); so that ultimately, it will be the vendee who will be made to bear the payment of
the balance of the price, despite the earlier foreclosure of the chattel mortgage given by him. Thus,
the protection given by Article 1484 would be indirectly subverted, and public policy overturned."
(Cruz vs. Filipinas Investment & Finance Corporation, L-24772, May 27, 1968; 23 SCRA 791).

The decision appealed from is affirmed, with costs against the defendant-appellant.

FILINVEST CREDIT CORPORATION vs CA 178 SCRA 188, G.R. No. 82508 September 29, 1989

FACTS:

Herein private respondents spouses Jose Sy Bang and Iluminada Tan were engaged in the sale of gravel
produced from crushed rocks and used for construction purposes. They intended to buy rock crusher
from Rizal Consolidated Corporation which carried a cash price tag of P550,000.00. They applied for
financial assistance from herein petitioner Filinvest Credit Corporation, who agreed to extend financial
aid on the certain conditions.

A contract of lease of machinery (with option to purchase) was entered into by the parties whereby the
private respondents agreed to lease from the petitioner the rock crusher for two years starting from July
5, 1981, payable as follows: P10,000.00 – first 3 months, P23,000.00 – next 6 months, P24,800.00 – next
15 months. It was likewise stipulated that at the end of the two-year period, the machine would be
owned by the private respondents. Thus the private respondent issued in favor of the petitioner a check
for P150,550.00, as initial rental (or guaranty deposit), and 24 postdated checks corresponding to the 24
monthly rentals. In addition, to guarantee their compliance with the lease contract, the private
respondent executed a real estate mortgage over two parcels of land in favor of the petitioner. The rock
crusher was delivered to the spouses.

However, 3 months later, the souses stopped payment when petitioner had not acted on the complaints
of the spouses about the machine. As a consequence, petitioner extra-judicially foreclosed the real
estate mortgage. The spouses filed a complaint before the RTC. The RTC rendered a decision in favor of
private respondent. The petitioner elevated the case to CA which affirmed the decision in toto. Hence,
this petition.

ISSUES:
1. Whether or not the nature of the contract is one of a contract of sale.

2. Whether or not the remedies of the seller provided for in Article 1484 are cumulative.

HELD:

1. Yes. The intent of the parties to the subject contract is for the so-called rentals to be the installment
payments. Upon the completion of the payments, then the rock crusher, subject matter of the contract,
would become the property of the private respondents. This form of agreement has been criticized as a
lease only in name.

Sellers desirous of making conditional sales of their goods, but who do not wish openly to make a
bargain in that form, for one reason or another, have frequently restored to the device of making
contracts in the form of leases either with options to the buyer to purchase for a small consideration at
the end of term, provided the so-called rent has been duly paid, or with stipulations that if the rent
throughout the term is paid, title shall thereupon vest in the lessee. It is obvious that such transactions
are leases only in name. The so-called rent must necessarily be regarded as payment of the price in
installments since the due payment of the agreed amount results, by the terms of bargain, in the
transfer of title to the lessee.

2. No, it is alternative. The seller of movable in installments, in case the buyer fails to pay 2 or more
installments, may elect to pursue either of the following remedies: (1) exact fulfillment by the purchaser
of the obligation; (2) cancel the sale; or (3) foreclose the mortgage on the purchased property if one was
constituted thereon. It is now settled that the said remedies are alternative and not cumulative, and
therefore, the exercise of one bars the exercise of the others. Indubitably, the device – contract of lease
with option to buy – is at times resorted to as a means to circumvent Article 1484, particularly
paragraph (3) thereof. Through the set-up, the vendor, by retaining ownership over the property in the
guise of being the lessor, retains, likewise the right to repossess the same, without going through the
process of foreclosure, in the event the vendee-lessee defaults in the payment of the installments.
There arises therefore no need to constitute a chattel mortgage over the movable sold. More important,
the vendor, after repossessing the property and, in effect, canceling the contract of sale, gets to keep all
the installments-cum-rentals already.

FILINVEST CREDIT CORPORATION vs. COURT OF APPEALS

G.R. No. 82508 September 29, 1989

Facts:

Spouses Sy Bang were engaged in the sale of gravel produced from crushed rocks and used for
construction purposes. In order to increase their production, they looked for a rock crusher which Rizal
Consolidated Corporation then had for sale. A brother of Sy Bang, went to inspect the machine at the
Rizal Consolidated’s plant site. Apparently satisfied with the machine, the private respondents signified
their intent to purchase the same.

Since he does not have the financing capability, Sy Bang applied for financial assistance from Filinvest
Credit Corporation. Filinvest agreed to extend financial aid on the following conditions: (1) that the
machinery be purchased in the petitioner’s name; (2) that it be leased with option to purchase upon the
termination of the lease period; and (3) that Sy Bang execute a real estate mortgage as security for the
amount advanced by Filinvest. A contract of lease of machinery (with option to purchase) was entered
into by the parties whereby they to lease from the petitioner the rock crusher for two years. The contract
likewise stipulated that at the end of the two-year period, the machine would be owned by Sy Bang.

3 months from the date of delivery, Sy Bang claiming that they had only tested the machine that month,
sent a letter-complaint to the petitioner, alleging that contrary to the 20 to 40 tons per hour capacity of the
machine as stated in the lease contract, the machine could only process 5 tons of rocks and stones per
hour. They then demanded that the petitioner make good the stipulation in the lease contract. Sy Bang
stopped payment on the remaining checks they had issued to the petitioner.

As a consequence of the non-payment, Filinvest extrajudicially foreclosed the real estate mortgage.

Issue:

WON the real transaction was lease or sale? SALE ON INSTALLMENTS.

Held:

The real intention of the parties should prevail. The nomenclature of the agreement cannot change its
true essence, i.e., a sale on installments. It is basic that a contract is what the law defines it and the
parties intend it to be, not what it is called by the parties. It is apparent here that the intent of the parties to
the subject contract is for the so-called rentals to be the installment payments. Upon the completion of the
payments, then the rock crusher, subject matter of the contract, would become the property of the private
respondents. This form of agreement has been criticized as a lease only in name.

Sellers desirous of making conditional sales of their goods, but who do not wish openly to make a bargain
in that form, for one reason or another, have frequently resorted to the device of making contracts in the
form of leases either with options to the buyer to purchase for a small consideration at the end of term,
provided the so-called rent has been duly paid, or with stipulations that if the rent throughout the term is
paid, title shall thereupon vest in the lessee. It is obvious that such transactions are leases only in name.
The so-called rent must necessarily be regarded as payment of the price in installments since the due
payment of the agreed amount results, by the terms of bargain, in the transfer of title to the lessee.

Indubitably, the device contract of lease with option to buy is at times resorted to as a means to
circumvent Article 1484, particularly paragraph (3) thereof.Through the set-up, the vendor, by retaining
ownership over the property in the guise of being the lessor, retains, likewise, the right to repossess the
same, without going through the process of foreclosure, in the event the vendee-lessee defaults in the
payment of the installments. There arises therefore no need to constitute a chattel mortgage over the
movable sold. More important, the vendor, after repossessing the property and, in effect, canceling the
contract of sale, gets to keep all the installments-cum-rentals already paid.

Even if there was a contract of sale, Filinvest is still not liable because Sy Bang is presumed to be more
knowledgeable, if not experts, on the machinery subject of the contract, they should not therefore be
heard now to complain of any alleged deficiency of the said machinery. It was Sy Bang who was
negligent, not Filinvest. Further, Sy Bang is precluded to complain because he signed a Waiver of
Warranty.

Luis Ridad and Lourdes Ridad, plaintiffs-appellees, v

Filipinas Investment and Finance Corporation, Jose D. Sebastian and Jose San Agustin, in his
capacity as Sheriff, defendants-appellants

 Plaintiffs purchased from Supreme Sales and Development Corporation (Supreme) 2 brand new Ford
Consul Sedans, for P26,887 payable in 24 monthly installments.
 To secure payment thereof, plaintiffs executed a promissory note covering the purchase price and a deed
of chattel mortgage on the two vehicles purchased and also on another car (Chevrolet) and plaintiff’s
franchise or certificate of public convenience granted by the defunct Public Service Commission for the
operation of a taxi fleet.
 With the conformity of plaintiffs, the vendor Supreme assigned its rights, title and interest to the
promissory note and chattel mortgage to the defendant Filipinas Investment and Finance Corporation.
 Plaintiffs failed to pay their monthly installments. Filipinas foreclosed the chattel mortgage extra-
judicially.
 During the public auction, of which the plaintiffs were not notified, the 2 Ford Consul cars were bought
by defendant Filipinas, who was as the highest bidder. During another public auction, the rest of the
properties (including the taxi franchise) subject of the chattel mortgage were sold, and bought by
defendant Filipinas also.
 Filipinas subsequently sold the taxi franchise to defendant Jose D. Sebastian, who filed with the Public
Service Commission an application for approval of said sale.
 Plaintiffs then filed an action for annulment of contract before the CFI, against Filipinas, Sebastian, and
Sheriff San Agustin.
 CFI ruling: The chattel mortgage was null and void in so far as the taxi franchise and the used Chevrolet
car were concerned, and the sale at public auction of the taxicab franchise was to be of no legal effect.
The Certificate of Sale issued by the Sheriff of Manila in favor of Filipinas concerning the taxi franchise
was cancelled and set aside. The assignment made by Filipinas in favor of Jose Sebastian was also
declared void and of no legal effect.
 The CA certified the defendants’ appeal to the SC.

Issue: Is the chattel mortgage and its subsequent sale valid? NO

Ratio:
 15) Article 1484 of the Civil Code is applicable. Under this article, the vendor of personal property the
purchase price of which is payable in installments, has the right, should the vendee default in the
payment of two or more of the agreed installments, to exact fulfillment by the purchaser of the
obligation, or to cancel the sale, or to foreclose the mortgage on the purchased personal property, if one
was constituted. The vendor can only choose one option.
16) If the vendor avails himself of the right to foreclose the mortgage, the law prohibits him from further
bringing an action against the vendee for the purpose of recovering whatever balance of the debt
secured is not satisfied by the foreclosure sale.
17) Purpose of the law is to prevent mortgagees from seizing the mortgaged property, buying it at
foreclosure sale for a low price and the bringing suit against the mortgagor for a deficiency judgment.
a. Without the law, the mortgagor-buyer would find himself without the property and still owing
practically the full amount of his original debt.
18) In this case, defendant Filipinas chose to foreclose the mortgage upon default of plaintiffs, and bought
the vehicles at the public auction as the highest bidder.
a. Filipinas is deemed to have renounced any and all rights which it might otherwise have under the
promissory note and the chattel mortgage as well as the payment of the unpaid balance.
19) The lower court rightly declared the nullity of the chattel mortgage in so far as the taxi franchise and the
Chevrolet were concerned, under the authority of the ruling in the case of Levy Hermanos, Inc. v Pacific
Commercial Co., et al.
20) The vendor’s right to foreclose is limited only on the thing sold.
21) The vendor of personal property sold on installment is precluded, after foreclosing the chattel mortgage
on the thing sold, from having a recourse against the additional security put up by a third party to
guarantee the purchaser’s performance of his obligation. (Cruz v Filipinos Investment & Finance Corporation)
a. Otherwise, if the vendee could still be compelled to pay the balance of the purchase price, the
vendee will be made to bear the payment of the balance despite the earlier foreclosure.
Judgment appealed from is affirmed.

RIDAD V FILIPINAS

Facts: The spouses Ridad purchased from the Supreme Sales Development Corporation
two (2) brand new Ford Consul Sedans complete with accessories. To secure payment
thereof, plaintiffs executed on the same date a promissory note covering the purchase price
and a deed of chattel mortgage not only on the two vehicles purchased but also on another
car (Chevrolet) and their franchise or certificate of public convenience granted by the
defunct Public Service Commission for the operation of a taxi fleet with Filipinas Investment.

Due to the failure of the plaintiffs to pay their monthly installments as per promissory note,
Filipinas Investment foreclosed on the chattel mortgage on the Ford Consul Sedans. The
foreclosure sale had a deficiency. Consequently, the corporation foreclosed the mortgage
constituted on the (Chevrolet) and their franchise or certificate of public convenience.

Issue: Whether Filipinas Investment is precluded from foreclosing the second mortgage to
recover the deficiency on the first mortgage

Held: No. The vendor of personal property sold on the installment basis is precluded, after
foreclosing the chattel mortgage on the thing sold from having a recourse against the
additional security put up by a third party to guarantee the purchaser’s performance of his
obligation on the theory that to sustain the same would overlook the fact that if the
guarantor should be compelled to pay the balance of the purchase price, said guarantor will
in turn be entitled to recover what he has paid from the debtor-vendee, and ultimately it will
be the latter who will be made to bear the payment of the of the balance of the price,
despite the earlier foreclosure of the chattel mortgage given by him, thereby indirectly
subverting the protection given the latter.

If the vendor under such circumstance is prohibited from having a recourse against the
additional security for reasons therein stated, there is no ground why such vendor should
not likewise be precluded from further extrajudicially foreclosing the additional security put
up by the vendees themselves, as in the instant case, it being tantamount to a further action
5 that would violate Article 1484 of the Civil Code, for then is actually no between an
additional security put up by the vendee himself and such security put up by a third party
insofar as how the burden would ultimately fall on the vendee himself is concerned.

Luis Ribad vs Filipinas Investment and Finance Corp

Facts:
On April 14, 1964, plaintiffs purchased from the Supreme Sales arid Development Corporation two (2)
brand new Ford Consul Sedans complete with accessories, for P26,887 payable in 24 monthly
installments. To secure payment thereof, plaintiffs executed on the same date a promissory note covering
the purchase price and a deed of chattel mortgage not only on the two vehicles purchased but also on
another car (Chevrolet) and plaintiffs' franchise or certificate of public convenience granted by the defunct
Public Service Commission for the operation of a taxi fleet. Then, with the conformity of the plaintiffs, the
vendor assigned its rights, title and interest to the above-mentioned promissory note and chattel
mortgage to defendant Filipinas Investment and Finance Corporation.

Due to the failure of the plaintiffs to pay their monthly installments as per promissory note, the defendant
corporation foreclosed the chattel mortgage extra-judicially, and at the public auction sale of the two Ford
Consul cars, of which the plaintiffs were not notified, the defendant corporation was the highest bidder
and purchaser. Another auction sale was held on November 16, 1965, involving the remaining properties
subject of the deed of chattel mortgage since plaintiffs' obligation was not fully satisfied by the sale of the
aforesaid vehicles, and at the public auction sale, the franchise of plaintiffs to operate five units of taxicab
service was sold for P8,000 to the highest bidder, herein defendant corporation, which subsequently sold
and conveyed the same to herein defendant Jose D. Sebastian, who then filed with the Public Service
Commission an application for approval of said sale in his favor.

On February 21, 1966, plaintiffs filed an action for annulment of contract before the Court of First Instance
of Rizal, Branch I, with Filipinas Investment and Finance Corporation, Jose D. Sebastian and Sheriff Jose
San Agustin, as party-defendants. By agreement of the parties, the case was submitted for decision in the
lower court on the basis of the documentary evidence adduced by the parties during the pre-trial
conference. Thereafter, the lower court declared the chattel mortgage to be null and void in so far as the
taxicab franchise and the used Chevrolet car of plaintiffs are concerned, and the sale at public auction
conducted by the City Sheriff of Manila concerning said taxicab franchise, to be of no legal effect.
Issue:The validity of the chattel mortgage in so far as the franchise and the subsequent sale thereof are
concerned.

Ruling:
The resolution of said issue is unquestionably governed by the provisions of Article 1484 of the Civil
Code.

The precise purpose of the law is to prevent mortgagees from seizing the mortgaged property, buying it at
foreclosure sale for a low price and then bringing suit against the mortgagor for a deficiency judgment,
otherwise, the mortgagor-buyer would find himself without the property and still owing practically the full
amount of his original indebtedness.

The lower court rightly declared the nullity of the chattel mortgage in question in so far as the taxicab
franchise and the used Chevrolet car of plaintiffs are concerned, under the authority of the ruling in the
case of Levy Hermanos, Inc. vs. Pacific Commercial Co., et al., 71 Phil. 587, the facts of which are similar
to those in the case at bar. There, we have the same situation wherein the vendees offered as security for
the payment of the purchase price not only the motor vehicles which were bought on installment, but also
a residential lot and a house of strong materials. This Court sustained the pronouncement made by the
lower court on the nullity of the mortgage in so far as it included the house and lot of the vendees, holding
that under the law, should the vendor choose to foreclose the mortgage, he has to content himself with
the proceeds of the sale at the public auction of the chattels which were sold on installment and
mortgaged to him and having chosen the remedy of foreclosure, he cannot nor should he be allowed to
insist on the sale of the house and lot of the vendees, for to do so would be equivalent to obtaining a writ
of execution against them concerning other properties which are separate and distinct from those which
were sold on installment. This would indeed be contrary to public policy and the very spirit and purpose of
the law, limiting the vendor's right to foreclose the chattel mortgage only on the thing sold.

De La Cruz v Asian Consumer (CHECK FULLTEXT)

Doctrine: In this jurisdiction, the three (3) remedies provided for in the "Recto Law" are alternative and not
cumulative; the exercise of one would preclude the other remedies. Consequently, should the vendee-mortgagor
default in the payment of two or more of the agreed installments, the vendor-mortgagee has the option to avail of
any of these three (3) remedies: either to exact fulfillment of the obligation, to cancel the sale, or to foreclose the
mortgage on the purchased chattel, if one was constituted.

Facts:

Spouses Romulo de la Cruz and Delia de la Cruz, and one Daniel Fajardo, petitioners, purchased on installment
basis one (1) truck from Benter Motor Sales Corporation (BENTER for brevity). To secure payment, they executed
in favor of BENTER a chattel mortgage over the vehicle 1 and a promissory note payable in thirty (30) monthly
installments of P9,412.00. On the same date, BENTER assigned its rights and interest over the vehicle in favor of
private respondent Asian Consumer and Industrial Finance Corporation (ASIAN for brevity).

Pets defaulted on more than two (2) installments. Thereafter, notwithstanding the demand letter of ASIAN,
petitioners failed to settle their obligation.
By virtue of a petition for extrajudicial foreclosure of chattel mortgage, the sheriff attempted to repossess the
vehicle but was unsuccessful because of the refusal of the son of petitioner, Rolando de la Cruz to surrender the
same. Hence, the return of the sheriff that the service was not satisfied.

Romulo de la Cruz brought the vehicle to the office of ASIAN and left it there where it was inventoried and
inspected.

ASIAN filed an ordinary action with the court a quo for collection of the balance of P196,152.99 of the purchase
price, plus liquidated damages and attorney's fees.

TC: pro- ASIAN

CA: Affirmed TC

". . . no extrajudicial foreclosure of chattel mortgage ever transpired in the case at bar. Undoubtedly, plaintiff had
first chosen to extrajudically foreclose the mortgage, but this did not materialize through no fault of plaintiff, as
defendant refused to surrender the Hino truck.”

"Though the remedy of foreclosure was first chosen, this remedy however proved ineffectual due to no fault of
plaintiff. Therefore, plaintiff may exercise other remedies such as exact fulfillment of the obligation and thereafter
recover the deficiency. This is the essence of the rule of alternative remedies under Article 1484."

Petitioners take exception. While they do not dispute that where the mortgagee elects the remedy of foreclosure
which, according to them, includes the option to sell in a public or private sale, commences and pursues it, and in
consideration of which he also performs everything that is incumbent upon him to do to implement the
foreclosure they nevertheless insist that he should not later be allowed to change course midway in the process,
abandon the foreclosure and shift to other remedies such as collection of the balance, especially after having
recovered the mortgaged chattel from them and while retaining possession thereof.

Issue: Whether or not a chattel mortgagee, after opting to foreclose the mortgage but failing afterwards to sell
the property at public auction, may still sue to recover the unpaid balance of the purchase price.

Held: Yes.

It is not disputed that the instant case is covered by the so-called "Recto Law", now Art. 1484 of the New Civil
Code, which provides:

"In a contract of sale of personal property the price of which is payable in installments, the vendor may exercise
any of the following remedies: (1) Exact fulfillment of the obligation, should the vendee fail to pay; (2) Cancel the
sale, should the vendee's failure to pay cover two or more installments; (3) Foreclose the chattel mortgage on the
thing sold, if one has been constituted, should the vendee's failure to pay cover two or more installments. In this
case, he shall have no further action against the purchaser to recover any unpaid balance of the price. Any
agreement to the contrary shall be void."

In this jurisdiction, the three (3) remedies provided for in the "Recto Law" are alternative and not cumulative; the
exercise of one would preclude the other remedies. Consequently, should the vendee-mortgagor default in the
payment of two or more of the agreed installments, the vendor-mortgagee has the option to avail of any of these
three (3) remedies: either to exact fulfillment of the obligation, to cancel the sale, or to foreclose the mortgage on
the purchased chattel, if one was constituted.

The records show that ASIAN initiated a petition for extrajudicial foreclosure of the chattel mortgage. But the
sheriff failed to recover the motor vehicle. It was not until 10 October 1984, or almost a month later that
petitioners delivered the unit to ASIAN. The action to recover the balance of the purchase price was instituted

It is thus clear that while ASIAN eventually succeeded in taking possession of the mortgaged vehicle, it did not
pursue the foreclosure of the mortgage as shown by the fact that no auction sale of the vehicle was ever
conducted.

In the case before Us, there being no actual foreclosure of the mortgaged property, ASIAN is correct in resorting to
an ordinary action for collection of the unpaid balance of the purchase price.

Agustin v. Court of Appeals

The dispute stemmed from an unpaid promissory note dated October 28, 1970, executed by
petitioner Leovillo C. Agustin in favor of ERM Commercial for the amount of P43,480.80. The note
was payable in monthly installments3and secured by a chattel mortgage over an Isuzu diesel
truck,4 both of which were subsequently assigned to private respondent Filinvest Finance
Corporation.5 When petitioner defaulted in paying the installments, private respondent demanded
from him the payment of the entire balance or, in lieu thereof, the possession of the mortgaged
vehicle. Neither payment nor surrender was made. Aggrieved, private respondent filed a complaint
with the Regional Trial. Court of Manila, Branch 26 (RTC Branch 26) against petitioner praying for
the issuance of a writ of replevin or, in the alternative, for the. payment of P32,723.97 plus interest at
the rate of 14% per annum from due date until fully paid.6 Trial ensued and, thereafter, a writ of
replevin was issued by RTC Branch 26. By virtue thereof, private respondent acquired possession of
the vehicle. Upon repossession, the latter discovered that the vehicle was no longer in running
condition and that several parts were missing which private respondent replaced. The vehicle was
then foreclosed and sold at public auction.

Private respondent subsequently filed a "supplemental complaint" claiming additional reimbursement

worth P8,852.76 as value of replacement parts7 and for expenses incurred in transporting the
mortgaged vehicle from Cagayan to Manila. In response, petitioner moved to dismiss the
supplemental complaint arguing that RTC Branch 26 had already lost jurisdiction over the case
because of the earlier extra-jurisdicial foreclosure of the mortgage. The lower court granted the
motion and the case was dismissed. Private respondent elevated the matter to the appellate court,
docketed as CA-G.R. No. 56718-R, which set aside the order of dismissal and ruled that
repossession expenses incurred by private respondent should be reimbursed.9 This decision
became final and executory, hence the case was accordingly remanded to the Regional Trial Court
of Manila, Branch 40 (RTC Branch 40) for reception of evidence to determine the amount due from
petitioner. 10 After trial, RTC Branch 40 found petitioner liable for the repossession expenses,
attorney's fees, liquidated damages, bonding fees and other expenses in the seizure of the vehicle in
the aggregate sum of P18,547.38. Petitioner moved for reconsideration. Acting thereon, RTC Branch
40 modified its decision by lowering the monetary award to P8,852.76, the amount originally prayed
for in the supplemental complaint. 11 Private respondent appealed the case with. respect to the
reduction of the amount awarded. Petitioner, likewise, appealed impugning the trial court's order for
him to pay private respondent P8,852.76, an amount over and above the value received from the
foreclosure sale. Both appeals were consolidated and in CA-G.R. No. 24684, the modified order of
RTC Branch 40 was affirmed. Petitioner filed a motion for reconsideration, but to no avail. 12 Hence,
this petition for review on certiorari.

Petitioner contends that. the award of repossession expenses to private respondent as mortgagee is
"contrary to the letter, intent and spirit of Article 1484 13 of the Civil Code". 14 He asserts that private
respondent's repossession expenses have been amply covered by the foreclosure of the chattel
mortgage, hence he could no longer be held liable. The arguments are devoid of merit.

Petitioner's contentions, we note, were previously rejected by respondent court in its decision in CA-
G.R No. 56718-R the dispositive portion of which provides as follows:

WHEREFORE, the order dismissing the case is hereby set aside and the case is
remanded to the lower court for reception of evidence of 'expenses properly incurred
in effecting seizure of the chattel (and) of recoverable attorney's fees in prosecuting
the action for replevin" as "repossession expenses" prayed for in the supplemental
complaint, without pronouncement as to costs. 15

which ruling has long acquired finality. It is clear, therefore, that the appellate court had
already settled the propriety of awarding repossession expenses in favor of private
respondent. The remand of the case to RTC Branch 40 was for the sole purpose of threshing
out the correct amount of expenses and not for relitigating the accuracy of the award. Thus,
the findings of RTC Branch 40, as affirmed by the appellate court in CA-G.R. No. 24684,
were confined to the appreciation of evidence relative to the repossession expenses for the
query or issue passed upon by the respondent court in CA-G.R. No. 56718-R (propriety of
the award for repossession expenses) has become the "law of the case". This principle is
defined as "a term applied to an established rule that when an appellate court passes on a
question and remands the cause to the lower court for further proceedings, the question
there settled becomes the law of the case upon subsequent appeal." 16Having exactly the
same parties and issues, the decision in the former appeal (CA-G.R. No. 56718-R) is now
the established and controlling rule. Petitioner may not therefore be allowed in a subsequent
appeal (CA-G.R. No. 24684) and in this petition to resuscitate and revive formerly settled
issues. Judgment of courts should attain finality at some point in time, as in this case,
otherwise, there will be no end to litigation.

At any rate, even if we were to brush aside the "law of the case" doctrine we find the award
for repossession expenses still proper. In Filipinas Investment & Finance Corporation
v. Ridad, 17 the Court recognized an exception to the rule stated under Art. 1484(3) upon
which petitioner relies. Thus:

. . . Where the mortgagor plainly refuses to deliver the chattel subject of the
mortgage upon his failure to pay two or more installments, or if he conceals the
chattel to place it beyond the reach of the mortgagee, what then is the mortgagee
expected to do? . . . It logically follows as a matter of common sense, that the
necessary expenses incurred in the prosecution by the mortgagee of the action for
replevin so that he can regain possession of the chattel, should be borne by the
 mortgagor. Recoverable expenses would, in our view, include expenses properly
incurred in effecting seizure of the chattel and reasonable attorney's fees in
prosecuting the action for replevin. 18

Anent the denial of the award for attorney's fees, we find the same in order. The trial court,
as well as respondent court, found no evidence to support the claim for; attorney's fees
which factual finding is binding on us. 19 We find no compelling reason, and none was
presented, to set aside this ruling.

ACCORDINGLY, the petition is DENIED for lack of merit, and the decision of the Court of
Appeals is hereby AFFIRMED in toto.

SO ORDERED.

Agustin v. Court of Appeals

Facts: Leovillo C. Agustin executed a promissory note in favor of ERM Commercial for the
amount ofP43,480.80 (ERM). The note was payable in monthly installments and secured
by a chattel mortgage over an Isuzu diesel truck, both of which were subsequently assigned
to private respondent Filinvest Finance Corporation. When petitioner defaulted in paying the
installments, private respondent demanded from him the payment of the entire balance or,
in lieuthereof, the possession of the mortgaged vehicle. Neither payment nor surrender was
made.

Aggrieved, private respondent filed a complaint with the Regional Trial Court of Manila,
Branch 26 (RTC Branch 26) against petitioner praying for the issuance of a writ of replevin o
Trial ensued and, thereafter, a writ of replevin was issued by RTC Branch 26. By virtue
thereof, private respondent acquired possession of the vehicle. Upon repossession, the
latter discovered that the vehicle was no longer in running condition and that several parts
were missing which private respondent replaced. The vehicle was then foreclosed and sold
at public auction. Petitioner contends that the award of repossession expenses to private
respondent as mortgagee is “contrary to the letter, intent and spirit of Article 1484 of the
Civil Code”. He asserts that private respondent’s repossession expenses have been amply
covered by the foreclosure of the chattel mortgage, hence he could no longer be held liable.

Issue: Whether or not mortgagor is liable to pay expenses as a result of the enforcement of
the foreclosure.

Held: Where the mortgagor plainly refuses to deliver the chattel subject of the mortgage
upon his failure to pay two or more installments, or if he conceals the chattel to place it
beyond the reach of the mortgagee, he may be held liable to pay expenses as a result of
the enforcement of the foreclosure. It logically follows as a matter of common sense, that
the necessary expenses incurred in the prosecution by the mortgagee of the action for
replevin so that he can regain possession of the chattel, should be borne by the mortgagor.
Recoverable expenses would, in our view, include expenses properly incurred in effecting
seizure of the chattel and reasonable attorney’s fees in prosecuting the action for replevin.

Fiestan vs. Court of Appeals, and Developmentt Bank of the Philippines

185 SCRA 751
May 1990

FACTS:

For failure of petitioner spouses Dionisio Fiestan and Juanita Arconada (spouses Fiestan) to pay their
mortgage indebtedness to respondent Development Bank of the Philippines (DBP), the latter was able
to acquire at a public auction sale on August 6, 1979 the parcel of land (Lot No. 2-B covered by TCT No.
T-13218) that the spouses Fiestan owned in Ilocos Sur after extrajudicial foreclosure of said property.
The Provincial Sheriff issued a certificate of sale that same day which was registered on September 28
in the Office of the Register of Deeds of Ilocos Sur. Earlier, or on September 26, spouses Fiestan also
executed a Deed of Sale in favor of DBP which was likewise registered on September 28, 1979. When
spouses Fiestan failed to redeem their parcel of land within the 1 year period which expired on
September 28, 1980, the Register of Deeds cancelled their title over the subject property and issued
TCT No. T-19077 to DBP upon the latter’s duly executed affidavit of consolidation of ownership.

On April 13, 1982, the DBP sold the lot to Francisco Peria, so the Register of Deeds of Ilocos Sur
cancelled DBP’s title over said property and issued TCT No. T-19229 to Peria’s name, who later secured
a tax declaration for said lot and accordingly paid the taxes due thereon. He thereafter mortgaged said
lot to the PNB-Vigan Branch as security for his loan of P115,000.00. Since the spouses Fiestan were still
in possession of the property, the Provincial Sheriff ordered them to vacate the premises, but instead
of leaving, they filed a complaint in the RTC of Vigan, Ilocos Sur for annulment of sale, mortgage and
cancellation of transfer certificates of title against the DBP-Laoag City, PNB-Vigan Branch, Ilocos Sur,
Francisco Peria and the Register of Deeds of Ilocos Sur.

The lower court dismissed said complaint, declaring valid the extrajudicial foreclosure sale of the
mortgaged property in favor of the DBP and its subsequent sale to Francisco Peria as well as the real
estate mortgage constituted in favor of PNB-Vigan. The Court of Appeals likewise affirmed said
decision. The spouses Fiestan herein seek to annul the extrajudicial foreclosure sale of the mortgaged
property on the ground that the Provincial Sheriff conducted the foreclosure without first effecting a
levy on said property before selling the same at the public auction sale.

ISSUE:

Who has the right to acquire by purchase the subject property?

COURT RULING:

In denying the petition, the Supreme Court reiterated that the formalities of a levy, which the
Provincial Sheriff of Ilocos Sur allegedly failed to comply with, are not basic requirements before an
extrajudicially foreclosed property can be sold at public auction. The spouses Fiestan insisted that
what prevails over the case are par. (2) of Article 1491 and par. (7) of Article 1409 of the Civil Code
which prohibits agents from acquiring by purchase, even at a public or judicial auction either in person
or through the mediation of another, the property whose administration or sale may have been
entrusted to them unless the consent of the principal has been given. However, the Supreme Court
ruled that the power to foreclose is not an ordinary agency that contemplates exclusively the
representation of the principal by the agent but is primarily an authority conferred upon the mortgagee
for the latter's own protection, as provided under Section 5 of Act No 3135, as amended, which is a
special law that must prevail over the Civil Code which is a general law. Even in the absence of
statutory provision, there is authority to hold that a mortgagee, and in this case the DBP, may purchase
at a sale under his mortgage to protect his own interest or to avoid a loss to himself by a sale to a third
person at a price below the mortgage debt.

Southern Motors vs. Moscoso

Facts:

Southern Motors sold to Moscoso one Chevrolet truck on installment basis. Upon making a
downpayment, Moscoso executed a promissory note representing the unpaid balance of the purchase
price. To secure payment, a chattel mortgage was constituted on the truck in favor of Southern
Motors. Moscoso failed to pay 3 installments. Subsequently, Southern Motors filed a complaint
against him to recover the unpaid balance of the promissory note. A writ of attachment was issued.
The Chevrolet truck and a house and lot belonging to Moscoso were attached by the sheriff. After
attachment but before the trial of the case, the Prov Sheriff sold the truck at a public auction,
Southern Motors being the only bidder, purchased the same. Trial court then rendered a decision
against Moscoso.

Arguments:

S. Motors: claims that in filing the complaint, demanding payment of the unpaid balance of the
purchase price, it has availed of the first remedy provided in said article i.e. to exact fulfillment of the
obligation (specific performance)

Moscoso: contends that appellee had availed itself of the third remedy viz, the foreclosure of the
chattel mortgage on the truck. He submits that the matter should be looked at, not by the allegations
in the complaint, but by the very effect and result of the procedural steps taken and that appellee tried
to camouflage its acts by filing a complaint purportedly to exact the fulfillment of an obligation
petition, in an attempt to circumvent the provisions of Article 1484 of the new Civil Code. He
concludes that under his theory, a deficiency judgment would be without legal basis.

Issue:
What did S. Motors availed of under Art. 1484 of the Civil Code, the first remedy (Exact fulfillment
of the obligation) or the third (Foreclose the chattel mortgage on the thing sold, if one has been
constituted, should the vendee’s failure to pay cover two or more installments. In this case, he shall
have no further action against the purchaser to recover any unpaid balance of the price. Any
agreement to the contrary shall be void.)?

Held:

Manifestly, the appellee had chosen the first remedy. The complaint is an ordinary civil action for
recovery of the remaining unpaid balance due on the promissory note. The plaintiff had not adopted
the procedure or methods outlined by Sec. 14 of the Chattel Mortgage Law but those prescribed for
ordinary civil actions, under the Rules of Court. Had appellee elected the foreclosure, it would not
have instituted this case in court; it would not have caused the chattel to be attached under Rule 59,
and had it sold at public auction, in the manner prescribed by Rule 39. That the herein appellee did
not intend to foreclose the mortgage truck, is further evinced by the fact that it had also attached the
house and lot of the appellant at San Jose, Antique.

The court perceived nothing unlawful or irregular in appellee’s act of attaching the mortgaged truck
itself. Since herein appellee has chosen to exact the fulfillment of the appellant’s obligation, it may
enforce execution of the judgment that may be favorably rendered hereon, on all personal and real
properties of the latter not exempt from execution sufficient to satisfy such judgment. It should be
noted that a house and lot at San Jose, Antique were also attached. No one can successfully contest
that the attachment was merely an incident to an ordinary civil action.

SOUTHERN MOTORS, INC. vs. MOSCOSO

2 SCRA 168G.R. No. L-14475, May 30, 1961

FACTS:
Plaintiff Southern Motors, Inc. sold to defendant Angel Moscoso one Chevrolet truck on
installment basis,for P6,445.00. Upon making a down payment, the defendant executed a
promissory note for the sum of P4,915.00, representing the unpaid balance of the purchase price
to secure the payment of which, achattel mortgage was constituted on the truck in favor of the
plaintiff. Of said account, the defendant hadpaid a total of P550.00, of which P110.00 was
applied to the interest and P400.00 to the principal, thusleaving an unpaid balance of P4,475.00.
The defendant failed to pay 3 installments on the balance of thepurchase price.Plaintiff filed a
complaint against the defendant, to recover the unpaid balance of the promissory note.Upon
plaintiff's petition, a writ of attachment was issued by the lower court on the properties of
thedefendant. Pursuant thereto, the said Chevrolet truck, and a house and lot belonging to
defendant, wereattached by the Sheriff and said truck was brought to the plaintiff's compound
for safe keeping. Afterattachment and before the trial of the case on the merits, acting upon the
plaintiff's motion for theimmediate sale of the mortgaged truck, the Provincial Sheriff of Iloilo
sold the truck at public auction inwhich plaintiff itself was the only bidder for P1,OOO.OO. The
trial court condemned the defendant to paythe plaintiff the amount of P4,475.00 with interest at
the rate of 12% per annum from August 16, 1957,until fully paid, plus 10% thereof as attorneys
fees and costs. Hence, this appeal by the defendant.

ISSUE:
Whether or not the attachment caused to be levied on the truck and its immediate sale at public
auction,was tantamount to the foreclosure of the chattel mortgage on said truck.

HELD:
No.Article 1484 of the Civil Code provides that in a contract of sale of personal property the
price of which ispayable in installments, the vendor may exercise any of the following remedies:
(I) Exact fulfillment of the obligation, should the vendee fail to pay; (2) Cancel the sale, should
the vendee's failure to pay covertwo or more installments; and (3) Foreclose the chattel
mortgage on the thing sold, if one has beenconstituted, should the vendee's failure to pay cover
two or more installments. In this case, he shall haveno further action against the purchaser to
recover any unpaid balance of the price. Any agreement to thecontrary shall be void.The
plaintiff had chosen the first remedy. The complaint is an ordinary civil action for recovery of
theremaining unpaid balance due on the promissory note. The plaintiff had not adopted the
procedure ormethods outlined by Sec. 14 of the Chattel Mortgage Law but those prescribed for
ordinary civil actions,under the Rules of Court. Had the plaintiff elected the foreclosure, it
would not have instituted this casein court; it would not have caused the chattel to be attached
under Rule 59, and had it sold at publicauction, in the manner prescribed by Rule 39. That the
plaintiff did not intend to foreclose the mortgagetruck, is further evinced by the fact that it had
also attached the house and lot of the appellant at SanJose, Antique.We perceive nothing
unlawful or irregular in plaintiff's act of attaching the mortgaged truck itself. Sincethe plaintiff
has chosen to exact the fulfillment of the appellant's obligation, it may enforce execution of the
judgment that may be favorably rendered hereon, on all personal and real properties of the
latter notexempt from execution sufficient to satisfy such judgment. It should be noted that a
house and lot at SanJose, Antique were also attached. No one can successfully contest that the
attachment was merely anincident to an ordinary civil action. The mortgage creditor may
recover judgment on the mortgage debtand cause an execution on the mortgaged property and
may cause an attachment to be issued andlevied on such property, upon beginning his civil
action.

LORENZO PASCUAL and LEONILA TORRES

vs.
UNIVERSAL MOTORS CORPORATION

1. That the plaintiffs executed the real estate mortgage subject matter of this
complaint on December 14, 1960 to secure the payment of the indebtedness of PDP
Transit, Inc. for the purchase of five (5) units of Mercedez Benz trucks under invoices
Nos. 2836, 2837, 2838, 2839 and 2840 with a total purchase price or principal
obligation of P152,506.50 but plaintiffs' guarantee is not to exceed P50,000.00 which
is the value of the mortgage.

2. That the principal obligation of P152,506.50 was to bear interest at 1% a month

from December 14, 1960.

3. That as of April 5, 1961 with reference to the two units mentioned above and as of
May 22, 1961 with reference to the three units, PDP Transit, Inc., plaintiffs' principal,
had paid to the defendant Universal Motors Corporation the sum of P92,964.91, thus
leaving a balance of P68,641.69 including interest due as of February 8, 1965.

4. That the aforementioned obligation guaranteed by the plaintiffs under the Real
Estate Mortgage, subject of this action, is further secured by separate deeds of
chattel mortgages on the Mercedez Benz units covered by the aforementioned
invoices in favor of the defendant Universal Motors Corporation.

5. That on March 19, 1965, the defendant Universal Motors Corporation filed a
complaint against PDP Transit, Inc. before, the Court of First Instance of Manila
docketed as Civil Case No. 60201 with a petition for a writ of Replevin, to collect the
balance due under the Chattel Mortgages and to repossess all the units to sold to
plaintiffs' principal PDP Transit, Inc. including the five (5) units guaranteed under the
subject Real (Estate) Mortgage.

In addition to the foregoing the Universal Motors Corporation admitted during the hearing that in its
suit (C.C. No. 60201) against the PDP Transit, Inc. it was able to repossess all the units sold to the
latter, including the five (5) units guaranteed by the subject real estate mortgage, and to foreclose all
the chattel mortgages constituted thereon, resulting in the sale of the trucks at public auction.

With the foregoing background, the spouses Lorenzo Pascual and Leonila Torres, the real estate
mortgagors, filed an action in the Court of First Instance of Quezon City (Civil Case No. 8189) for the
cancellation of the mortgage they constituted on two (2) parcels of land1 in favor of the Universal
Motors Corporation to guarantee the obligation of PDP Transit, Inc. to the extent of P50,000. The
court rendered judgment for the plaintiffs, ordered the cancellation of the mortgage, and directed the
defendant Universal Motors Corporation to pay attorney's fees to the plaintiffs in the sum of P500.00.
Unsatisfied with the decision, defendant interposed the present appeal.

In rendering judgment for the plaintiffs the lower court said in part: "... there does not seem to be any
doubt that Art. 14842 of the New Civil Code may be applied in relation to a chattel mortgage
constituted upon personal property on the installment basis (as in the present case) precluding the
mortgagee to maintain any further action against the debtor for the purpose of recovering whatever
balance of the debt secured, and even adding that any agreement to the contrary shall be null and
void."
The appellant now disputes the applicability of Article 1484 of the Civil Code to the case at bar on
the ground that there is no evidence on record that the purchase by PDP Transit, Inc. of the five (5)
trucks, the payment of the price of which was partly guaranteed by the real estate mortgage in
question, was payable in installments and that the purchaser had failed to pay two or more
installments. The appellant also contends that in any event what article 1484 prohibits is for the
vendor to recover from the purchaser the unpaid balance of the price after he has foreclosed the
chattel mortgage on the thing sold, but not a recourse against the security put up by a third party.

Both arguments are without merit. The first involves an issue of fact: whether or not the sale was one
on installments; and on this issue the lower court found that it was, and that there was failure to pay
two or more installments. This finding is not subject to review by this Court. The appellant's bare
allegation to the contrary cannot be considered at this stage of the case.

The next contention is that what article 1484 withholds from the vendor is the right to recover any
deficiency from the purchaser after the foreclosure of the chattel mortgage and not a recourse to the
additional security put up by a third party to guarantee the purchaser's performance of his obligation.
A similar argument has been answered by this Court in this wise: "(T)o sustain appellant's argument
is to overlook the fact that if the guarantor should be compelled to pay the balance of the purchase
price, the guarantor will in turn be entitled to recover what she has paid from the debtor vendee (Art.
2066, Civil Code); so that ultimately, it will be the vendee who will be made to bear the payment of
the balance of the price, despite the earlier foreclosure of the chattel mortgage given by him. Thus,
the protection given by Article 1484 would be indirectly subverted, and public policy overturned."
(Cruz vs. Filipinas Investment & Finance Corporation, L-24772, May 27, 1968; 23 SCRA 791).

The decision appealed from is affirmed, with costs against the defendant-appellant.

FILINVEST CREDIT CORPORATION vs CA 178 SCRA 188, G.R. No. 82508 September 29, 1989

FACTS:

Herein private respondents spouses Jose Sy Bang and Iluminada Tan were engaged in the sale of gravel
produced from crushed rocks and used for construction purposes. They intended to buy rock crusher
from Rizal Consolidated Corporation which carried a cash price tag of P550,000.00. They applied for
financial assistance from herein petitioner Filinvest Credit Corporation, who agreed to extend financial
aid on the certain conditions.

A contract of lease of machinery (with option to purchase) was entered into by the parties whereby the
private respondents agreed to lease from the petitioner the rock crusher for two years starting from July
5, 1981, payable as follows: P10,000.00 – first 3 months, P23,000.00 – next 6 months, P24,800.00 – next
15 months. It was likewise stipulated that at the end of the two-year period, the machine would be
owned by the private respondents. Thus the private respondent issued in favor of the petitioner a check
for P150,550.00, as initial rental (or guaranty deposit), and 24 postdated checks corresponding to the 24
monthly rentals. In addition, to guarantee their compliance with the lease contract, the private
respondent executed a real estate mortgage over two parcels of land in favor of the petitioner. The rock
crusher was delivered to the spouses.

However, 3 months later, the souses stopped payment when petitioner had not acted on the complaints
of the spouses about the machine. As a consequence, petitioner extra-judicially foreclosed the real
estate mortgage. The spouses filed a complaint before the RTC. The RTC rendered a decision in favor of
private respondent. The petitioner elevated the case to CA which affirmed the decision in toto. Hence,
this petition.

ISSUES:

1. Whether or not the nature of the contract is one of a contract of sale.

2. Whether or not the remedies of the seller provided for in Article 1484 are cumulative.

HELD:

1. Yes. The intent of the parties to the subject contract is for the so-called rentals to be the installment
payments. Upon the completion of the payments, then the rock crusher, subject matter of the contract,
would become the property of the private respondents. This form of agreement has been criticized as a
lease only in name.
Sellers desirous of making conditional sales of their goods, but who do not wish openly to make a
bargain in that form, for one reason or another, have frequently restored to the device of making
contracts in the form of leases either with options to the buyer to purchase for a small consideration at
the end of term, provided the so-called rent has been duly paid, or with stipulations that if the rent
throughout the term is paid, title shall thereupon vest in the lessee. It is obvious that such transactions
are leases only in name. The so-called rent must necessarily be regarded as payment of the price in
installments since the due payment of the agreed amount results, by the terms of bargain, in the
transfer of title to the lessee.

2. No, it is alternative. The seller of movable in installments, in case the buyer fails to pay 2 or more
installments, may elect to pursue either of the following remedies: (1) exact fulfillment by the purchaser
of the obligation; (2) cancel the sale; or (3) foreclose the mortgage on the purchased property if one was
constituted thereon. It is now settled that the said remedies are alternative and not cumulative, and
therefore, the exercise of one bars the exercise of the others. Indubitably, the device – contract of lease
with option to buy – is at times resorted to as a means to circumvent Article 1484, particularly
paragraph (3) thereof. Through the set-up, the vendor, by retaining ownership over the property in the
guise of being the lessor, retains, likewise the right to repossess the same, without going through the
process of foreclosure, in the event the vendee-lessee defaults in the payment of the installments.
There arises therefore no need to constitute a chattel mortgage over the movable sold. More important,
the vendor, after repossessing the property and, in effect, canceling the contract of sale, gets to keep all
the installments-cum-rentals already.

FILINVEST CREDIT CORPORATION vs. COURT OF APPEALS

G.R. No. 82508 September 29, 1989

Facts:

Spouses Sy Bang were engaged in the sale of gravel produced from crushed rocks and used for
construction purposes. In order to increase their production, they looked for a rock crusher which Rizal
Consolidated Corporation then had for sale. A brother of Sy Bang, went to inspect the machine at the
Rizal Consolidated’s plant site. Apparently satisfied with the machine, the private respondents signified
their intent to purchase the same.

Since he does not have the financing capability, Sy Bang applied for financial assistance from Filinvest
Credit Corporation. Filinvest agreed to extend financial aid on the following conditions: (1) that the
machinery be purchased in the petitioner’s name; (2) that it be leased with option to purchase upon the
termination of the lease period; and (3) that Sy Bang execute a real estate mortgage as security for the
amount advanced by Filinvest. A contract of lease of machinery (with option to purchase) was entered
into by the parties whereby they to lease from the petitioner the rock crusher for two years. The contract
likewise stipulated that at the end of the two-year period, the machine would be owned by Sy Bang.

3 months from the date of delivery, Sy Bang claiming that they had only tested the machine that month,
sent a letter-complaint to the petitioner, alleging that contrary to the 20 to 40 tons per hour capacity of the
machine as stated in the lease contract, the machine could only process 5 tons of rocks and stones per
hour. They then demanded that the petitioner make good the stipulation in the lease contract. Sy Bang
stopped payment on the remaining checks they had issued to the petitioner.

As a consequence of the non-payment, Filinvest extrajudicially foreclosed the real estate mortgage.

Issue:

WON the real transaction was lease or sale? SALE ON INSTALLMENTS.

Held:

The real intention of the parties should prevail. The nomenclature of the agreement cannot change its
true essence, i.e., a sale on installments. It is basic that a contract is what the law defines it and the
parties intend it to be, not what it is called by the parties. It is apparent here that the intent of the parties to
the subject contract is for the so-called rentals to be the installment payments. Upon the completion of the
payments, then the rock crusher, subject matter of the contract, would become the property of the private
respondents. This form of agreement has been criticized as a lease only in name.

Sellers desirous of making conditional sales of their goods, but who do not wish openly to make a bargain
in that form, for one reason or another, have frequently resorted to the device of making contracts in the
form of leases either with options to the buyer to purchase for a small consideration at the end of term,
provided the so-called rent has been duly paid, or with stipulations that if the rent throughout the term is
paid, title shall thereupon vest in the lessee. It is obvious that such transactions are leases only in name.
The so-called rent must necessarily be regarded as payment of the price in installments since the due
payment of the agreed amount results, by the terms of bargain, in the transfer of title to the lessee.

Indubitably, the device contract of lease with option to buy is at times resorted to as a means to
circumvent Article 1484, particularly paragraph (3) thereof.Through the set-up, the vendor, by retaining
ownership over the property in the guise of being the lessor, retains, likewise, the right to repossess the
same, without going through the process of foreclosure, in the event the vendee-lessee defaults in the
payment of the installments. There arises therefore no need to constitute a chattel mortgage over the
movable sold. More important, the vendor, after repossessing the property and, in effect, canceling the
contract of sale, gets to keep all the installments-cum-rentals already paid.

Even if there was a contract of sale, Filinvest is still not liable because Sy Bang is presumed to be more
knowledgeable, if not experts, on the machinery subject of the contract, they should not therefore be
heard now to complain of any alleged deficiency of the said machinery. It was Sy Bang who was
negligent, not Filinvest. Further, Sy Bang is precluded to complain because he signed a Waiver of
Warranty.

Luis Ridad and Lourdes Ridad, plaintiffs-appellees, v

Filipinas Investment and Finance Corporation, Jose D. Sebastian and Jose San Agustin, in his
capacity as Sheriff, defendants-appellants

 Plaintiffs purchased from Supreme Sales and Development Corporation (Supreme) 2 brand new Ford
Consul Sedans, for P26,887 payable in 24 monthly installments.
 To secure payment thereof, plaintiffs executed a promissory note covering the purchase price and a deed
of chattel mortgage on the two vehicles purchased and also on another car (Chevrolet) and plaintiff’s
franchise or certificate of public convenience granted by the defunct Public Service Commission for the
operation of a taxi fleet.
 With the conformity of plaintiffs, the vendor Supreme assigned its rights, title and interest to the
promissory note and chattel mortgage to the defendant Filipinas Investment and Finance Corporation.
 Plaintiffs failed to pay their monthly installments. Filipinas foreclosed the chattel mortgage extra-
judicially.
 During the public auction, of which the plaintiffs were not notified, the 2 Ford Consul cars were bought
by defendant Filipinas, who was as the highest bidder. During another public auction, the rest of the
properties (including the taxi franchise) subject of the chattel mortgage were sold, and bought by
defendant Filipinas also.
 Filipinas subsequently sold the taxi franchise to defendant Jose D. Sebastian, who filed with the Public
Service Commission an application for approval of said sale.
 Plaintiffs then filed an action for annulment of contract before the CFI, against Filipinas, Sebastian, and
Sheriff San Agustin.
 CFI ruling: The chattel mortgage was null and void in so far as the taxi franchise and the used Chevrolet
car were concerned, and the sale at public auction of the taxicab franchise was to be of no legal effect.
The Certificate of Sale issued by the Sheriff of Manila in favor of Filipinas concerning the taxi franchise
was cancelled and set aside. The assignment made by Filipinas in favor of Jose Sebastian was also
declared void and of no legal effect.
 The CA certified the defendants’ appeal to the SC.

Issue: Is the chattel mortgage and its subsequent sale valid? NO

Ratio:

22) Article 1484 of the Civil Code is applicable. Under this article, the vendor of personal property the
purchase price of which is payable in installments, has the right, should the vendee default in the
payment of two or more of the agreed installments, to exact fulfillment by the purchaser of the
obligation, or to cancel the sale, or to foreclose the mortgage on the purchased personal property, if one
was constituted. The vendor can only choose one option.
23) If the vendor avails himself of the right to foreclose the mortgage, the law prohibits him from further
bringing an action against the vendee for the purpose of recovering whatever balance of the debt
secured is not satisfied by the foreclosure sale.
24) Purpose of the law is to prevent mortgagees from seizing the mortgaged property, buying it at
foreclosure sale for a low price and the bringing suit against the mortgagor for a deficiency judgment.
a. Without the law, the mortgagor-buyer would find himself without the property and still owing
practically the full amount of his original debt.
 25) In this case, defendant Filipinas chose to foreclose the mortgage upon default of plaintiffs, and bought
the vehicles at the public auction as the highest bidder.
a. Filipinas is deemed to have renounced any and all rights which it might otherwise have under the
promissory note and the chattel mortgage as well as the payment of the unpaid balance.
26) The lower court rightly declared the nullity of the chattel mortgage in so far as the taxi franchise and the
Chevrolet were concerned, under the authority of the ruling in the case of Levy Hermanos, Inc. v Pacific
Commercial Co., et al.
27) The vendor’s right to foreclose is limited only on the thing sold.
28) The vendor of personal property sold on installment is precluded, after foreclosing the chattel mortgage
on the thing sold, from having a recourse against the additional security put up by a third party to
guarantee the purchaser’s performance of his obligation. (Cruz v Filipinos Investment & Finance Corporation)
a. Otherwise, if the vendee could still be compelled to pay the balance of the purchase price, the
vendee will be made to bear the payment of the balance despite the earlier foreclosure.
Judgment appealed from is affirmed.

RIDAD V FILIPINAS

Facts: The spouses Ridad purchased from the Supreme Sales Development Corporation
two (2) brand new Ford Consul Sedans complete with accessories. To secure payment
thereof, plaintiffs executed on the same date a promissory note covering the purchase price
and a deed of chattel mortgage not only on the two vehicles purchased but also on another
car (Chevrolet) and their franchise or certificate of public convenience granted by the
defunct Public Service Commission for the operation of a taxi fleet with Filipinas Investment.

Due to the failure of the plaintiffs to pay their monthly installments as per promissory note,
Filipinas Investment foreclosed on the chattel mortgage on the Ford Consul Sedans. The
foreclosure sale had a deficiency. Consequently, the corporation foreclosed the mortgage
constituted on the (Chevrolet) and their franchise or certificate of public convenience.

Issue: Whether Filipinas Investment is precluded from foreclosing the second mortgage to
recover the deficiency on the first mortgage

Held: No. The vendor of personal property sold on the installment basis is precluded, after
foreclosing the chattel mortgage on the thing sold from having a recourse against the
additional security put up by a third party to guarantee the purchaser’s performance of his
obligation on the theory that to sustain the same would overlook the fact that if the
guarantor should be compelled to pay the balance of the purchase price, said guarantor will
in turn be entitled to recover what he has paid from the debtor-vendee, and ultimately it will
be the latter who will be made to bear the payment of the of the balance of the price,
despite the earlier foreclosure of the chattel mortgage given by him, thereby indirectly
subverting the protection given the latter.

If the vendor under such circumstance is prohibited from having a recourse against the
additional security for reasons therein stated, there is no ground why such vendor should
not likewise be precluded from further extrajudicially foreclosing the additional security put
up by the vendees themselves, as in the instant case, it being tantamount to a further action
5 that would violate Article 1484 of the Civil Code, for then is actually no between an
additional security put up by the vendee himself and such security put up by a third party
insofar as how the burden would ultimately fall on the vendee himself is concerned.

Luis Ribad vs Filipinas Investment and Finance Corp

Facts:

On April 14, 1964, plaintiffs purchased from the Supreme Sales arid Development Corporation two (2)
brand new Ford Consul Sedans complete with accessories, for P26,887 payable in 24 monthly
installments. To secure payment thereof, plaintiffs executed on the same date a promissory note covering
the purchase price and a deed of chattel mortgage not only on the two vehicles purchased but also on
another car (Chevrolet) and plaintiffs' franchise or certificate of public convenience granted by the defunct
Public Service Commission for the operation of a taxi fleet. Then, with the conformity of the plaintiffs, the
vendor assigned its rights, title and interest to the above-mentioned promissory note and chattel
mortgage to defendant Filipinas Investment and Finance Corporation.

Due to the failure of the plaintiffs to pay their monthly installments as per promissory note, the defendant
corporation foreclosed the chattel mortgage extra-judicially, and at the public auction sale of the two Ford
Consul cars, of which the plaintiffs were not notified, the defendant corporation was the highest bidder
and purchaser. Another auction sale was held on November 16, 1965, involving the remaining properties
subject of the deed of chattel mortgage since plaintiffs' obligation was not fully satisfied by the sale of the
aforesaid vehicles, and at the public auction sale, the franchise of plaintiffs to operate five units of taxicab
service was sold for P8,000 to the highest bidder, herein defendant corporation, which subsequently sold
and conveyed the same to herein defendant Jose D. Sebastian, who then filed with the Public Service
Commission an application for approval of said sale in his favor.

On February 21, 1966, plaintiffs filed an action for annulment of contract before the Court of First Instance
of Rizal, Branch I, with Filipinas Investment and Finance Corporation, Jose D. Sebastian and Sheriff Jose
San Agustin, as party-defendants. By agreement of the parties, the case was submitted for decision in the
lower court on the basis of the documentary evidence adduced by the parties during the pre-trial
conference. Thereafter, the lower court declared the chattel mortgage to be null and void in so far as the
taxicab franchise and the used Chevrolet car of plaintiffs are concerned, and the sale at public auction
conducted by the City Sheriff of Manila concerning said taxicab franchise, to be of no legal effect.
Issue:The validity of the chattel mortgage in so far as the franchise and the subsequent sale thereof are
concerned.

Ruling:
The resolution of said issue is unquestionably governed by the provisions of Article 1484 of the Civil
Code.

The precise purpose of the law is to prevent mortgagees from seizing the mortgaged property, buying it at
foreclosure sale for a low price and then bringing suit against the mortgagor for a deficiency judgment,
otherwise, the mortgagor-buyer would find himself without the property and still owing practically the full
amount of his original indebtedness.

The lower court rightly declared the nullity of the chattel mortgage in question in so far as the taxicab
franchise and the used Chevrolet car of plaintiffs are concerned, under the authority of the ruling in the
case of Levy Hermanos, Inc. vs. Pacific Commercial Co., et al., 71 Phil. 587, the facts of which are similar
to those in the case at bar. There, we have the same situation wherein the vendees offered as security for
the payment of the purchase price not only the motor vehicles which were bought on installment, but also
a residential lot and a house of strong materials. This Court sustained the pronouncement made by the
lower court on the nullity of the mortgage in so far as it included the house and lot of the vendees, holding
that under the law, should the vendor choose to foreclose the mortgage, he has to content himself with
the proceeds of the sale at the public auction of the chattels which were sold on installment and
mortgaged to him and having chosen the remedy of foreclosure, he cannot nor should he be allowed to
insist on the sale of the house and lot of the vendees, for to do so would be equivalent to obtaining a writ
of execution against them concerning other properties which are separate and distinct from those which
were sold on installment. This would indeed be contrary to public policy and the very spirit and purpose of
the law, limiting the vendor's right to foreclose the chattel mortgage only on the thing sold.

De La Cruz v Asian Consumer (CHECK FULLTEXT)

Doctrine: In this jurisdiction, the three (3) remedies provided for in the "Recto Law" are alternative and not
cumulative; the exercise of one would preclude the other remedies. Consequently, should the vendee-mortgagor
default in the payment of two or more of the agreed installments, the vendor-mortgagee has the option to avail of
any of these three (3) remedies: either to exact fulfillment of the obligation, to cancel the sale, or to foreclose the
mortgage on the purchased chattel, if one was constituted.

Facts:

Spouses Romulo de la Cruz and Delia de la Cruz, and one Daniel Fajardo, petitioners, purchased on installment
basis one (1) truck from Benter Motor Sales Corporation (BENTER for brevity). To secure payment, they executed
in favor of BENTER a chattel mortgage over the vehicle 1 and a promissory note payable in thirty (30) monthly
installments of P9,412.00. On the same date, BENTER assigned its rights and interest over the vehicle in favor of
private respondent Asian Consumer and Industrial Finance Corporation (ASIAN for brevity).

Pets defaulted on more than two (2) installments. Thereafter, notwithstanding the demand letter of ASIAN,
petitioners failed to settle their obligation.

By virtue of a petition for extrajudicial foreclosure of chattel mortgage, the sheriff attempted to repossess the
vehicle but was unsuccessful because of the refusal of the son of petitioner, Rolando de la Cruz to surrender the
same. Hence, the return of the sheriff that the service was not satisfied.

Romulo de la Cruz brought the vehicle to the office of ASIAN and left it there where it was inventoried and
inspected.

ASIAN filed an ordinary action with the court a quo for collection of the balance of P196,152.99 of the purchase
price, plus liquidated damages and attorney's fees.

TC: pro- ASIAN

CA: Affirmed TC

". . . no extrajudicial foreclosure of chattel mortgage ever transpired in the case at bar. Undoubtedly, plaintiff had
first chosen to extrajudically foreclose the mortgage, but this did not materialize through no fault of plaintiff, as
defendant refused to surrender the Hino truck.”

"Though the remedy of foreclosure was first chosen, this remedy however proved ineffectual due to no fault of
plaintiff. Therefore, plaintiff may exercise other remedies such as exact fulfillment of the obligation and thereafter
recover the deficiency. This is the essence of the rule of alternative remedies under Article 1484."

Petitioners take exception. While they do not dispute that where the mortgagee elects the remedy of foreclosure
which, according to them, includes the option to sell in a public or private sale, commences and pursues it, and in
consideration of which he also performs everything that is incumbent upon him to do to implement the
foreclosure they nevertheless insist that he should not later be allowed to change course midway in the process,
abandon the foreclosure and shift to other remedies such as collection of the balance, especially after having
recovered the mortgaged chattel from them and while retaining possession thereof.

Issue: Whether or not a chattel mortgagee, after opting to foreclose the mortgage but failing afterwards to sell
the property at public auction, may still sue to recover the unpaid balance of the purchase price.

Held: Yes.

It is not disputed that the instant case is covered by the so-called "Recto Law", now Art. 1484 of the New Civil
Code, which provides:

"In a contract of sale of personal property the price of which is payable in installments, the vendor may exercise
any of the following remedies: (1) Exact fulfillment of the obligation, should the vendee fail to pay; (2) Cancel the
sale, should the vendee's failure to pay cover two or more installments; (3) Foreclose the chattel mortgage on the
thing sold, if one has been constituted, should the vendee's failure to pay cover two or more installments. In this
case, he shall have no further action against the purchaser to recover any unpaid balance of the price. Any
agreement to the contrary shall be void."

In this jurisdiction, the three (3) remedies provided for in the "Recto Law" are alternative and not cumulative; the
exercise of one would preclude the other remedies. Consequently, should the vendee-mortgagor default in the
payment of two or more of the agreed installments, the vendor-mortgagee has the option to avail of any of these
three (3) remedies: either to exact fulfillment of the obligation, to cancel the sale, or to foreclose the mortgage on
the purchased chattel, if one was constituted.

The records show that ASIAN initiated a petition for extrajudicial foreclosure of the chattel mortgage. But the
sheriff failed to recover the motor vehicle. It was not until 10 October 1984, or almost a month later that
petitioners delivered the unit to ASIAN. The action to recover the balance of the purchase price was instituted

It is thus clear that while ASIAN eventually succeeded in taking possession of the mortgaged vehicle, it did not
pursue the foreclosure of the mortgage as shown by the fact that no auction sale of the vehicle was ever
conducted.

In the case before Us, there being no actual foreclosure of the mortgaged property, ASIAN is correct in resorting to
an ordinary action for collection of the unpaid balance of the purchase price.

Agustin v. Court of Appeals

The dispute stemmed from an unpaid promissory note dated October 28, 1970, executed by
petitioner Leovillo C. Agustin in favor of ERM Commercial for the amount of P43,480.80. The note
was payable in monthly installments3and secured by a chattel mortgage over an Isuzu diesel
truck,4 both of which were subsequently assigned to private respondent Filinvest Finance
Corporation.5 When petitioner defaulted in paying the installments, private respondent demanded
from him the payment of the entire balance or, in lieu thereof, the possession of the mortgaged
vehicle. Neither payment nor surrender was made. Aggrieved, private respondent filed a complaint
with the Regional Trial. Court of Manila, Branch 26 (RTC Branch 26) against petitioner praying for
the issuance of a writ of replevin or, in the alternative, for the. payment of P32,723.97 plus interest at
the rate of 14% per annum from due date until fully paid.6 Trial ensued and, thereafter, a writ of
replevin was issued by RTC Branch 26. By virtue thereof, private respondent acquired possession of
the vehicle. Upon repossession, the latter discovered that the vehicle was no longer in running
condition and that several parts were missing which private respondent replaced. The vehicle was
then foreclosed and sold at public auction.

Private respondent subsequently filed a "supplemental complaint" claiming additional reimbursement

worth P8,852.76 as value of replacement parts7 and for expenses incurred in transporting the
mortgaged vehicle from Cagayan to Manila. In response, petitioner moved to dismiss the
supplemental complaint arguing that RTC Branch 26 had already lost jurisdiction over the case
because of the earlier extra-jurisdicial foreclosure of the mortgage. The lower court granted the
motion and the case was dismissed. Private respondent elevated the matter to the appellate court,
docketed as CA-G.R. No. 56718-R, which set aside the order of dismissal and ruled that
repossession expenses incurred by private respondent should be reimbursed.9 This decision
became final and executory, hence the case was accordingly remanded to the Regional Trial Court
of Manila, Branch 40 (RTC Branch 40) for reception of evidence to determine the amount due from
petitioner. 10 After trial, RTC Branch 40 found petitioner liable for the repossession expenses,
attorney's fees, liquidated damages, bonding fees and other expenses in the seizure of the vehicle in
the aggregate sum of P18,547.38. Petitioner moved for reconsideration. Acting thereon, RTC Branch
40 modified its decision by lowering the monetary award to P8,852.76, the amount originally prayed
for in the supplemental complaint. 11 Private respondent appealed the case with. respect to the
reduction of the amount awarded. Petitioner, likewise, appealed impugning the trial court's order for
him to pay private respondent P8,852.76, an amount over and above the value received from the
foreclosure sale. Both appeals were consolidated and in CA-G.R. No. 24684, the modified order of
RTC Branch 40 was affirmed. Petitioner filed a motion for reconsideration, but to no avail. 12 Hence,
this petition for review on certiorari.

Petitioner contends that. the award of repossession expenses to private respondent as mortgagee is
"contrary to the letter, intent and spirit of Article 1484 13 of the Civil Code". 14 He asserts that private
respondent's repossession expenses have been amply covered by the foreclosure of the chattel
mortgage, hence he could no longer be held liable. The arguments are devoid of merit.

Petitioner's contentions, we note, were previously rejected by respondent court in its decision in CA-
G.R No. 56718-R the dispositive portion of which provides as follows:

WHEREFORE, the order dismissing the case is hereby set aside and the case is
remanded to the lower court for reception of evidence of 'expenses properly incurred
in effecting seizure of the chattel (and) of recoverable attorney's fees in prosecuting
the action for replevin" as "repossession expenses" prayed for in the supplemental
complaint, without pronouncement as to costs. 15

which ruling has long acquired finality. It is clear, therefore, that the appellate court had
already settled the propriety of awarding repossession expenses in favor of private
respondent. The remand of the case to RTC Branch 40 was for the sole purpose of threshing
out the correct amount of expenses and not for relitigating the accuracy of the award. Thus,
the findings of RTC Branch 40, as affirmed by the appellate court in CA-G.R. No. 24684,
were confined to the appreciation of evidence relative to the repossession expenses for the
query or issue passed upon by the respondent court in CA-G.R. No. 56718-R (propriety of
the award for repossession expenses) has become the "law of the case". This principle is
defined as "a term applied to an established rule that when an appellate court passes on a
question and remands the cause to the lower court for further proceedings, the question
there settled becomes the law of the case upon subsequent appeal." 16Having exactly the
same parties and issues, the decision in the former appeal (CA-G.R. No. 56718-R) is now
the established and controlling rule. Petitioner may not therefore be allowed in a subsequent
appeal (CA-G.R. No. 24684) and in this petition to resuscitate and revive formerly settled
issues. Judgment of courts should attain finality at some point in time, as in this case,
otherwise, there will be no end to litigation.

At any rate, even if we were to brush aside the "law of the case" doctrine we find the award
for repossession expenses still proper. In Filipinas Investment & Finance Corporation
v. Ridad, 17 the Court recognized an exception to the rule stated under Art. 1484(3) upon
which petitioner relies. Thus:

. . . Where the mortgagor plainly refuses to deliver the chattel subject of the
mortgage upon his failure to pay two or more installments, or if he conceals the
chattel to place it beyond the reach of the mortgagee, what then is the mortgagee
expected to do? . . . It logically follows as a matter of common sense, that the
necessary expenses incurred in the prosecution by the mortgagee of the action for
replevin so that he can regain possession of the chattel, should be borne by the
mortgagor. Recoverable expenses would, in our view, include expenses properly
incurred in effecting seizure of the chattel and reasonable attorney's fees in
prosecuting the action for replevin. 18

Anent the denial of the award for attorney's fees, we find the same in order. The trial court,
as well as respondent court, found no evidence to support the claim for; attorney's fees
which factual finding is binding on us. 19 We find no compelling reason, and none was
presented, to set aside this ruling.

ACCORDINGLY, the petition is DENIED for lack of merit, and the decision of the Court of
Appeals is hereby AFFIRMED in toto.
 SO ORDERED.

Agustin v. Court of Appeals

Facts: Leovillo C. Agustin executed a promissory note in favor of ERM Commercial for the
amount ofP43,480.80 (ERM). The note was payable in monthly installments and secured
by a chattel mortgage over an Isuzu diesel truck, both of which were subsequently assigned
to private respondent Filinvest Finance Corporation. When petitioner defaulted in paying the
installments, private respondent demanded from him the payment of the entire balance or,
in lieuthereof, the possession of the mortgaged vehicle. Neither payment nor surrender was
made.

Aggrieved, private respondent filed a complaint with the Regional Trial Court of Manila,
Branch 26 (RTC Branch 26) against petitioner praying for the issuance of a writ of replevin o
Trial ensued and, thereafter, a writ of replevin was issued by RTC Branch 26. By virtue
thereof, private respondent acquired possession of the vehicle. Upon repossession, the
latter discovered that the vehicle was no longer in running condition and that several parts
were missing which private respondent replaced. The vehicle was then foreclosed and sold
at public auction. Petitioner contends that the award of repossession expenses to private
respondent as mortgagee is “contrary to the letter, intent and spirit of Article 1484 of the
Civil Code”. He asserts that private respondent’s repossession expenses have been amply
covered by the foreclosure of the chattel mortgage, hence he could no longer be held liable.

Issue: Whether or not mortgagor is liable to pay expenses as a result of the enforcement of
the foreclosure.

Held: Where the mortgagor plainly refuses to deliver the chattel subject of the mortgage
upon his failure to pay two or more installments, or if he conceals the chattel to place it
beyond the reach of the mortgagee, he may be held liable to pay expenses as a result of
the enforcement of the foreclosure. It logically follows as a matter of common sense, that
the necessary expenses incurred in the prosecution by the mortgagee of the action for
replevin so that he can regain possession of the chattel, should be borne by the mortgagor.
Recoverable expenses would, in our view, include expenses properly incurred in effecting
seizure of the chattel and reasonable attorney’s fees in prosecuting the action for replevin.

Fiestan vs. Court of Appeals, and Developmentt Bank of the Philippines

185 SCRA 751
May 1990

FACTS:

For failure of petitioner spouses Dionisio Fiestan and Juanita Arconada (spouses Fiestan) to pay their
mortgage indebtedness to respondent Development Bank of the Philippines (DBP), the latter was able
to acquire at a public auction sale on August 6, 1979 the parcel of land (Lot No. 2-B covered by TCT No.
T-13218) that the spouses Fiestan owned in Ilocos Sur after extrajudicial foreclosure of said property.
The Provincial Sheriff issued a certificate of sale that same day which was registered on September 28
in the Office of the Register of Deeds of Ilocos Sur. Earlier, or on September 26, spouses Fiestan also
executed a Deed of Sale in favor of DBP which was likewise registered on September 28, 1979. When
spouses Fiestan failed to redeem their parcel of land within the 1 year period which expired on
September 28, 1980, the Register of Deeds cancelled their title over the subject property and issued
TCT No. T-19077 to DBP upon the latter’s duly executed affidavit of consolidation of ownership.

On April 13, 1982, the DBP sold the lot to Francisco Peria, so the Register of Deeds of Ilocos Sur
cancelled DBP’s title over said property and issued TCT No. T-19229 to Peria’s name, who later secured
a tax declaration for said lot and accordingly paid the taxes due thereon. He thereafter mortgaged said
lot to the PNB-Vigan Branch as security for his loan of P115,000.00. Since the spouses Fiestan were still
in possession of the property, the Provincial Sheriff ordered them to vacate the premises, but instead
of leaving, they filed a complaint in the RTC of Vigan, Ilocos Sur for annulment of sale, mortgage and
cancellation of transfer certificates of title against the DBP-Laoag City, PNB-Vigan Branch, Ilocos Sur,
Francisco Peria and the Register of Deeds of Ilocos Sur.

The lower court dismissed said complaint, declaring valid the extrajudicial foreclosure sale of the
mortgaged property in favor of the DBP and its subsequent sale to Francisco Peria as well as the real
estate mortgage constituted in favor of PNB-Vigan. The Court of Appeals likewise affirmed said
decision. The spouses Fiestan herein seek to annul the extrajudicial foreclosure sale of the mortgaged
property on the ground that the Provincial Sheriff conducted the foreclosure without first effecting a
levy on said property before selling the same at the public auction sale.

ISSUE:

Who has the right to acquire by purchase the subject property?

COURT RULING:

In denying the petition, the Supreme Court reiterated that the formalities of a levy, which the
Provincial Sheriff of Ilocos Sur allegedly failed to comply with, are not basic requirements before an
extrajudicially foreclosed property can be sold at public auction. The spouses Fiestan insisted that
what prevails over the case are par. (2) of Article 1491 and par. (7) of Article 1409 of the Civil Code
which prohibits agents from acquiring by purchase, even at a public or judicial auction either in person
or through the mediation of another, the property whose administration or sale may have been
entrusted to them unless the consent of the principal has been given. However, the Supreme Court
ruled that the power to foreclose is not an ordinary agency that contemplates exclusively the
representation of the principal by the agent but is primarily an authority conferred upon the mortgagee
for the latter's own protection, as provided under Section 5 of Act No 3135, as amended, which is a
special law that must prevail over the Civil Code which is a general law. Even in the absence of
statutory provision, there is authority to hold that a mortgagee, and in this case the DBP, may purchase
at a sale under his mortgage to protect his own interest or to avoid a loss to himself by a sale to a third
person at a price below the mortgage debt.